Chinese thermal coal prices on the way up :: Macquarie Research,

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Chinese thermal coal prices on the
way up
Feature article
 Chinese thermal coal prices have strengthened recently and look set to rise
further as IPPS look to restock earlier than unusual ahead of summer. This
was a successful strategy heading into winter this year, building stockpiles
may be more difficult and expensive given stronger power demand growth
and uncertainty surrounding hydro availability.

Latest news
 Base metals were down in Monday trading as the announcement that S&P
has put a negative outlook on the long-term AAA credit rating of the US, with
the strength in the US$ and a drop in treasuries suggesting investors took off
some risk rather than anything more sinister. Gold was the strongest
performer, rising 1.1% on the PM fix to just shy of $1,500/oz.
 Chinese officials have again raised Reserve Requirement Ratios (RRR) for
banks by 50bps, with the RRR for the largest banks now standing at 20.5%.
Given the large increase in foreign exchange reserves in 1Q the hike in the
RRR seemed aimed at sterilising capital inflows and keeping monetary
conditions stable rather than tightening further, although policy already seems
sufficiently tight to slow activity into mid-2011.
 The NAHB Builder Confidence index, suggested that US housing construction
remains stuck in the mire, falling to 16 from 17.
 The FT have reported that European car manufacturers are starting to get
traction on sales of diesel vehicles in the US, with Volkswagen recording a
46.2%YoY increase in diesel sales in the US in March. While this is off a low
base, a shift towards diesel vehicles in the US would increase demand for
platinum-based autocatalysts.
 Despite the impact of the natural disasters in Japan on coal fired generation
capacity, total coal consumption by the JPUs was 3.0% higher than March
2010. We would note that a significant proportion of coal fired generation that
was damaged is not owned by the JPUs, but nonetheless this is a surprising
result.
 Transnet are due to close the railway to Richards Bay from May 23 to June 11
for maintenance. Given the performance of exports so far and the current
weak stock position, this is likely to be another factor weighing on the ability of
Richards Bay to match last years exports of 63.4mt.
 We attended a briefing by the Department of Mineral Resource (DMR), which
announced findings of the audit of prospecting rights following the moratorium
imposed on 30 August 2010. The initiatives taken by the DMR to resolve
issues with prospecting rights appear to be well supported by stakeholders in
the mining sector, although transgressions on environmental management
and prospecting works by rights holders could be punished severely.