China nickel – higher supply and use:: Macquarie Research

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China nickel – higher supply and use
Feature article
 We review Chinese first-half nickel data, which shows a strong increase in
supply and demand. Higher nickel pig iron production also appears to be
stimulating greater production of 300-series stainless steel production.
Latest news
 Base metals edged lower on Monday as the market awaited a decision on the
US debt ceiling. Meanwhile, gold fixed at another new high of $1,614/oz.
Monday was the fourth day of a strike by around 2,375 workers at the world's
largest copper mine, Chile's Escondida, with no immediate solution apparent.
Talks are at an impasse over an $11,000 bonus demand. The potential for
the situation to escalate is increasing, with contract workers at the mine set to
join the strike on Tuesday and unions at state-owned miner Codelco also
offering their support to Escondida workers. We would note that, while a force
majeure declaration by Escondida would certainly support the copper price,
Chinese buyers remain uninterested at current price levels and only when
they are encouraged to increase their call on the international market (either
through low inventories or lower prices) will any disruptions be deeply felt.
 There remain little signs of life in the US construction sector, with the
American Institute of Architects Architecture Billings Index (ABI) falling for the
third consecutive month. At 46.2, the index suggests a contraction in activity
and has now hit the lowest point since June 2010. Historically, the ABI has
been a key leading indicator for the non-residential construction sector, and
the lack of design activity suggests little pickup in steel purchases in 2011.
 Emirates Aluminium (EMAL) has announced plans to boost its production
capacity by 570ktpa through introduction of a new potline. This will take the
company's total capacity to 1.3 mtpa, with scheduled completion by the end of
2012. Boosted by recent ramp-ups at EMAL, Dubal and Qatalum aluminium
production in the Gulf region has increased by ~600kt over the past year – all
of which has been absorbed by rising demand in the area. Meanwhile,
German aluminium industry association GDA noted that output in the country
rose 5.3% YoY to 428kt in the January-May period, while output of rolled
aluminium products rose 4.3% YoY to 814kt in the same period.
 Anglo American Platinum reported 1H11 production, with the results mixed.
Equivalent ounce production for platinum was poor, falling 28koz due to a
combination of safety-related issues and difficult mining/geological conditions.
Refined production, however, was up almost 100koz as platinum in the
pipeline was reduced. Meanwhile, cash operating costs rose 13% YoY to
R12,991 ($1,921/t) before by-product credits, yet another example of the cost
pressures afflicting the mining industry.
 South African coal miners who are members of the National Union of
Mineworkers and Solidarity have gone on strike over current pay negotiations.
It is believed that mines should have enough stocks to keep demand satisfied if
the strikes are short-lived. In addition the main user, Eskom, also holds
“adequate” stocks. Richards Bay port currently reportedly holds ~3mt of stock.