Commodities Comment Things can only get better? : Macquarie

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Commodities Comment
Things can only get better?
Feature article
 We review high-frequency data on steel and base metals demand in China
and outside of China to May 2011. The data suggests destocking by
consumers and potentially points to a recovery in apparent demand in China
in 2H11.
Latest news
 Base metals continued to rally on Thursday, as Greece moved a further step
away from an imminent crunch in debt markets and economic data in the US
was a little better. The Chicago and Kansas City regional PMI surveys
suggested a bounce in manufacturing in the month, suggesting the downside
risk to the ISM data released tomorrow may not be as bad as earlier surveys
suggested.
 African Rainbow Minerals has announced that Assmang will convert another
two furnaces from ferrochrome to ferromanganese. It is anticipated that the
conversion will commence during 1Q12 and once complete will increase
Assmang’s ferromanganese production by 100ktpa. This move is indicative of
the pressures facing the high-cost South African chrome alloy producers, with
the switch to HC ferromaganese production sensible given the lower energy
intensity of production and the quality of Assmang’s manganese ore.
 Mechel has announced that it is planning to produce the first coal from its
Elga deposit in August, although this appears to be contingent on receiving a
production permit. Mechel is planning to produce at Elga 300kt by the end of
this year, with progress at Elga having been delayed from its original start
date of November last year.
 The No. 9 unit of Joban Joint Power’s Nakoso power station, which has
capacity of 600MW, has now resumed operation after being damaged during
the Tohoku earthquake. The No. 8 unit (600MW) is scheduled to resume
operations in mid-July, with the smaller No. 7 unit (250MW) still under repairs
and due back online by the end of the year.
 Lanco Infratech is facing a lawsuit for not complying to supply coal to fertilizer
producer Perdaman at its recently acquired Griffin coal asset in WA.
Perdaman is alleging that financing for the project could not be finalised after
Lanco threatened to withhold coal supply unless higher pricing was accepted.
Lanco has claimed that the allegations are “baseless” although has reportedly
inherited a contract to provide 2.8mt per year of coal to Perdaman for the next
25 years. Lanco acquired Griffin coal to gain exposure to the seaborne coal
market, with coal currently exported mostly being traded into markets in North
Asia.
 Minara has been forced to reduce production at its Murrin Murrin nickel ore
processing facility due to a failure of a heat exchanger, which has resulted in
its acid plant being taken offline. Minara commented it is currently assessing
the impact on production.
 Barclays Capital and Metalloyd are reportedly creating a warehousing
services company called Eros, utilising facilities already owned in Antwerp
and is looking for other locations. Recently, Barclays was reported to have
cancelled lead warrants in Antwerp and moved them into Eros facilities.