Palladium on the move as autos begin recovery:: Macquarie Research,

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Palladium on the move as autos begin
recovery
Latest news
 Base metals were mostly higher in Monday trading, with Nickel
underperforming in what was a quiet day for metals markets.
 Preliminary shipping data for May shows that iron ore exports from Brazil
recovered slightly in May, up 5.4% MoM and 9.3% YoY to 308mtpa. The big
gain was to ex-China, with shipments of 166mtpa, the highest since October
2010. Exports to Europe were up 10.8% MoM, highlighting that steelmaker
purchasing is continuing despite falling steel prices and the potential for
seasonal production weakness into early 3Q. Exports in the year to date have
averaged 293mtpa, up 7% YoY but 11% below 2H 2010 averages,
highlighting the weather-related difficulties faced in 2011 thus far.
 Exports to China rose 4.8% MoM to 142mtpa, still 15% below February
levels. Vale has previously stated that it expects its overall exports to China to
be flat YoY. With 5 months of the year gone, Vale exports (ex-Samarco) have
reached 50mt, up 7.8% (or 3.6mt) compared to 2010. We have factored in a
slight increase in exports from Vale to China this year, but there remains risk
that either weaker 2H production than 2010 or increased ex-China demand
could limit the material available. We would reiterate our expectation that the
spot iron price will reaccelerate through 3Q as Chinese demand returns.
 The 400,000tpa El Teniente copper mine has seen output disrupted since last
Friday, 3 June, following an incident where contractors attacked some of the
buses that transport the Codelco´s workers into the mine. We heard on
Monday that El Teniente was running at ~40% of its normal capacity. Codelco
is taking measures to counteract the action of the contractors on the buses
but will not negotiate directly with them, so the base case is that the
conflict will continue for some time. Every week the strike lasts (with the mine
running at 40% capacity) will result in the loss of 4-5,000t of copper.
 Ollanta Humala has claimed a narrow victory in Sunday's Peruvian election.
Given the populist demand for a larger piece of the “commodity boom” pie
(~35% of Peruvians still live in poverty), a rise in the tax burden on Peruvian
miners is almost inevitable. In our view, Humala's election win is the worst
case scenario for miners with operations in Peru, given Humala's proposed
policy to double royalties & impose a windfall profits tax of 40%. Peru is an
important commodity producer, accounting for over 5% of global supply of
copper, zinc and lead. For copper alone, Peru is set to account for one-third of
new supply in the long term. Given uncertainty over proposed rises in the tax
burden for miners and the potential negative impact, we believe that there
may be a significant effect on new copper projects. Specifically, we believe
that investment in new mines may be delayed and marginal projects may
even be cancelled. As a result, any delay in investment decisions will further
tighten the supply side for the red metal, especially in 2015/16. This further
supports our view that after small surpluses in 2013/14, the copper market will
again move into deficit in 2015/16.