At the coal face: Feedback from Shanxi Feature ::Macquarie Research,

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At the coal face: Feedback from
Shanxi
Feature article
 Last week we headed up to Shanxi and Beijing to meet with thermal and
coking coal producers and consultancies. Key themes that came out of the
meetings were the sharp rise in operating costs this year, the potential for
persistent bottlenecks in the transport network despite rail capacity expansion
and the potential for Shanxi to significantly increase production of hard coking
coal over the medium term.
Latest news
 Base metals pushed yet higher on Thursday, with copper up 2.3% to more
than $4.40/lb, as worries over the impact of strikes and Grasberg and El
Teniente continued. Meanwhile nickel, aluminium and tin also showed strong
gains.
 Turkey's chrome ore exports fell 8% MoM to 133,935t GW in June. The
reason for the decline was a sharp drop in shipments to China, down 32%
MoM to 86,234t, offset only partly by a rise in shipments to Sweden (Turkey's
Yildirim Group, which owns and operates major chrome ore miner, Eti Krom,
also owns Sweden's Vargon Alloys). In 1H11 as a whole, Turkey's chrome ore
exports fell 11% YoY to ~1.04mt. Again, the main reason for the decline was
reduced shipments to China, down 19% YoY to ~862,200t, where stocks of
chrome ore are reported to be high and ferrochrome prices are falling. South
African charge chrome imports are reportedly now selling in the low-90s c/lb,
CIF China, and we would not now be surprised to see the benchmark
settlement for quarterly contract prices fall by ~15c/lb to ~120c/lb DDP Europe
for 3Q11 once the current, unusually protracted negotiations are concluded.
 The high frequency data on China’s crude steel production published by CISA
suggested run rates hit 737mtpa over the final ten days of June – a record
high. Our recent conversations with mills have indicated that production run
rates have indeed held up over June, but we are sceptical that output was as
high as the CISA numbers suggest. A key discrepancy in the data is that
CISA also released an estimate for total June output of 713mtpa. This is
comfortably below the average of the data released for the three ten-day
periods in the month, which came to 723mtpa.
 American Metal Market has reported that galvanisers and die cast alloy
producers in the US are being offered premiums of 7.5 cents per pound for
2012 shipments, up 50% on 2011 levels.
 Preliminary data on Chinese coal imports suggested the total was 14.24mt in
June, up from 13.57mt in May (although maybe subject to revision). The
composition has reportedly shifted, with coking coal rising strongly (likely from
Mongolia) and sub-bit coal from Indonesia dropping by 17.2% MoM after the
big surge in May.