Commodities Comment --Diverse strength in 1H steel output ::Macquarie Research

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Commodities Comment
Diverse strength in 1H steel output
Feature article
 We review 1H11 steel production data. The 11% sequential rise in output over
this period highlights ongoing strength in the global steel economy across
almost all regions. Furthermore, a Japan-induced alteration to the industrial
cycle and shortage of long product inventory in China are likely to result in
3Q11 showing further acceleration in YoY growth rates.
Latest news
 Base metals sold off in Wednesday‟s LME trading, with the feeling that the
recent rally was perhaps slightly premature, driving some profit-taking. Lead
fell 2.8% to $1.21/lb, while silver dropped 4.3% to back below $40/oz.
 McCloskey‟s has reported that coal shipments from Indonesia hit an all-time
record in May of 23.05mt, up dramatically from the 19.68mt shipped in April.
With sub-bituminous coal in the money on a delivered Southern China basis
during the month, unsurprisingly China accounted for much of the rise, with
exports up to 6.08mt in the month from 4.29mt in April. We would note that
actual exports are higher than that contained within the shipping data. Over
2011 as a whole we expect 294mt of Indonesian exports, up 3.6% YoY.
 BHP Billiton will roll over prices for manganese ore for shipments in August
from current levels for July, leaving medium-grade (43%–44% Mn) lump
unchanged for the fourth month in a row at $5.30/dmtu CIF China. Prices for
manganese ore had fallen steeply from peak levels of well over $8/dmtu in
May/June 2010, but prices now appear to have found a floor. Indeed, we
understand that prices in the spot market have picked up modestly (typically
~10–20c/dmtu) over the last month or so, with China's crude steel production
running near all-time record levels. However, we are not expecting any
substantial price rise in the short term, with stock levels at some points along
the supply chain still high but at least now starting to fall.
 BHP Billiton's iron ore sales increased by 8% QoQ to 35.6mt in Q2 CY11,
despite a train derailment during the period, and its RGP4 Pilbara sales finally
reached full capacity of 155mt annualised. Meanwhile, met coal sales
increased by one-third on the same comparison to 8.2mt, following weatherrelated
disruptions in 1Q11. Copper production was flat from 1Q–2Q11 at
272,000t, but this was better than many in the market had been anticipating.
Output of manganese ore also increased, climbing 2% QoQ to 7.1mt (60%
attributable basis), which marked a new record.
 The IAI's latest data show global average primary aluminium production rose
by 5% YoY to 69,900tpd. Year to date (January–June) average production is
running at a rate of 69,700tpd, which marks a rise of 6% from the
corresponding period of 2010.
 The latest ten-day data from the China Iron and Steel Association shows
crude steel output during the first ten days of July was 1.955mt/day, or
714mtpa. This was down 3.1% sequentially, with scheduled maintenance at
several mills, but remains extremely strong as discussed in the feature article.
 The State Administration of Taxation in China has confirmed that the draft
document for changes to the pilot resources tax in Xinjiang amends the
measurement from “quantity basis” to “value basis” and will extend from oil
and gas to other energy goods, such as coal.