Commodities Comment -- Assessing the forward curves-- Macquarie Research,

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Commodities Comment
Assessing the forward curves
Feature article
 We examine the stories behind the shape of commodity forward curves.
Latest news
 Base metals sold off on Friday as June US non-farm payrolls disappointed.
Over the week however, with China confidence gaining, of the major metals
only zinc ended up in negative territory.
 Chinese steel prices ticked up this week, shaking off Wednesday's rate hike
and reports of production reaching new record highs at the end of June. The
theme of long products outperforming flats remained with rebar prices pushing
up RMB40/t to RMB4,860/t ($637/t ex VAT) while HRC was up RMB35/t to
RMB4,860/t ($624/t). Our view remains that a seasonal slowdown in real
demand over Q3 will allow prices to drift but that low inventory levels mean
downside is limited.
 German steel industry association WV Stahl reported that the country‟s crude
steel output rose 0.2% YoY to 3.87mt (47.1mtpa) in June, with capacity
utilisation at 94%. However, this represents a 2.7% MoM fall as we near the
weaker summer period. Interestingly, despite manufacturing remaining
strong, output of flat products fell 3.7% YoY in the month to 2.31mt, while long
products rose 9.1% YoY.
 The China Association of Automobile Manufacturers (CAAM) reported June
wholesale data. Passenger vehicle (PV) sales grew 4% YoY and 4% MoM in
June, better than expected as Japanese joint ventures reaccelerated. Total
vehicle sales grew 3% YoY in 1H2011, much lower compared to the growth
rate of 32% in 2010. According to CAAM, lacklustre market conditions will
continue in 2H2011 and the association lowered its full-year growth estimates
to 5%, from 10-15% at the beginning of the year.
 Mitsubishi Materials Corp, Japan‟s third largest copper smelter, only expects
to resume shipments to its main 300,000tpa Onahama smelter at the end of
this month following infrastructure damage sustained during the March
earthquake. Production is not expected to normalise until October, with the
company now expecting copper output to fall 21.7% YoY to 128kt over the
April-September period.
 Preliminary Indian iron ore export data for June shows exports of 4.22mt
(51mtpa) in the month, down 22% YoY and 53.8% MoM as the monsoon
impacted shipments. This is the thirteenth consecutive month of YoY losses,
and YTD cumulative export losses have now reached 15mt YoY, more than
was lost in the whole of last year. The overreliance on Goa is now being
exposed by the monsoon, with West Coast exports down 69% MoM. With
exports likely to remain suppressed until October and Chinese mill
inventories low, iron ore market fundamentals remain extremely tight.
 The NDRC has reportedly told the major coal producers that thermal coal
prices for 5,500kcal/kg coal should not exceed RMB850/t in the next 3
months. This intervention doesn‟t seem necessary given the subdued nature
of the market in the last month or so, but nonetheless signals policy makers‟
unease with high coal prices.