Commodities Comment The wrong kind of nickel in 2011::Macquarie Research

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Commodities Comment
The wrong kind of nickel in 2011
Feature article
 We update our nickel supply/demand estimates and reiterate our expectation
of a first-half deficit and second half surplus. We also note that there appears
to be too many ferronickel units being produced this year.

Latest news
 It was a strong day for the base metals, driven by a weaker US dollar. Nickel
was the strongest performer, rising 4% on the day back towards $12/lb. In
today’s article, we outline some reasons why prices should be lower in the
second half, probably heading back towards $10/lb. Meanwhile, copper, gold
and silver also raced higher. Copper is weathering the Chinese “storm” well
with news filtering back from CESCO in Chile focussing on ongoing supply
issues for the industry with most corporates talking the market up (not
surprisingly). In China, the SHFE October steel rebar price also ignored
yesterday’s rate hike to close up 2% on the first day of post-holiday trading.
 Brazilian port statistics for March have confirmed that iron ore exports in the
month were very poor, with a reversion back to almost January levels.
Annualised exports were 273mtpa, down 18% MoM and 2% YoY. For the
quarter as a whole, exports were down 16% sequentially compared with 8%
on average in recent years – 1Q is always bad but this year particularly
so. Exports to China took the biggest hit at 121mtpa, down 28% MoM and the
second lowest total since the start of 2009. Exports to Europe were actually
strong in the month, while those to Japan were slightly weaker than normal.
Yet again, this highlights the problems supply of iron ore is facing,
with seaborne trade set to be down HoH in H1 2011.
 Platts has reported that Japanese steel mills have agreed to pay a monthly
price for BHP Billiton-Mitsubishi (BMA) coal in April, at levels close to the
$330/t FOB Australia previously agreed with other suppliers for the quarter for
the premium hard coking coal brands. However, it is understood the mills
have maintained their position of resistance against the monthly concept, and
will be taking sharply reduced tonnages in the month.
 Chinese coal prices edged higher after the holiday, with prices at QHD up
Rmb10/t to Rmb785/t. Domestic coal freight, which has been a useful leading
indicator, was slightly lower this weaker, down 1.1% to Rmb71/t according to
the Shanghai Shipping Exchange. The NDRC has also again reiterated its
desire to keep contract coal pricing stable at 2010 through the summer,
although according to the China Coal Time, average contract prices for 2011
settled late last year were up Rmb30/t on last year’s levels.
 Richards Bay exports continue to struggle relative to last year, with exports
down 5% YoY to 5.365mt in the month. Exports to date are 5% behind last
year’s run rate, with stocks of 3.079mt at the end of March 8% below levels
seen this time last year.
 The market for ferrous swaps appears to be gaining momentum, with
LCH.Clearnet processing the first ever cleared swap transaction for Turkish
ferrous scrap close on the back of the CME’s recent launch of scrap, billet and
HRC OTC contracts. The 1,000t trade was settled against the TSI HMS#1&2
Index.