Macquarie Research:: Thermal coal: Australian supply challenges more than flooding

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Thermal coal: Australian supply
challenges more than flooding
Feature article
 Current pricing of swaps for thermal coal from Newcastle appear to
underestimate the upside risk from very high semi-soft prices and the
increased quantities of off-spec coal being exported from NSW.

Latest news
 Base metals were mixed in Thursday trading, while precious metals sold off
across the board as the US$ strengthened.
 After the Chinese New Year lull, the spot iron ore price has found further
upward momentum with the latest 62% assessment by The Steel Index rising
to a new record of $188/t CFR China. This is a demand-driven trade at
present, and while Chinese steel production and prices continue to rise, small
Chinese steel mills feel comfortable paying more for iron ore. Backed by
strong market fundamentals, we do see the price continuing to edge up in the
near term, however at such an elevated level, new long positions on iron ore
will be few and far between. With small mills behaviour often driven by the
reaction to government policy, and further tightening measures expected, we
would however expect them to become nervous as soon as either steel prices
or production show signs of topping out. The resulting pullback from the spot
market is likely to result in an iron ore price correction towards mid-year,
however we reiterate our long term positive view on iron ore and would
consider anything below $150/t CFR China underpriced in the current market.
 Latest Chinese port data shows that stocks of nickel ore held at Chinese ports
fell a massive 2mt (around 13-18kt recoverable nickel) in January to 8.9mt,
their lowest since May 2010. The recent peak was 12mt in mid-
November. This sharp fall reflects that nickel pig iron production may well be
holding at high levels while arrivals of nickel ore from Indonesia have
reportedly fallen 30-40% due to a ban on exports of high moisture content ore
after the capsizing of three ore carriers in November with a high loss of
life. Recent high nickel prices in part reflect a growing tightness of nickel in
China and a scramble to import more primary nickel.
 It was reported on Thursday that six workers for Vale had been taken hostage
by indigenous Indians who staged protests that blocked one of the company's
principal rail lines in northern Brazil. Vale reported that "they were captured
during the invasion of Carajas Rail Line by the indigenous people," noting that
the workers had been held for almost a day. The company has however
recently restored transit along the rail line that services its Carajas iron mine.
 It was reported on Thursday that six workers for Vale had been taken hostage
by indigenous Indians who staged protests that blocked one of the company's
principal rail lines in northern Brazil. Vale reported that "they were captured
during the invasion of Carajas Rail Line by the indigenous people," noting that
the workers had been held for almost a day. The company has however
recently restored transit along the rail line that services its Carajas iron mine.