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Commodities Comment
Probing the potential for PCI
With Peabody and ArcelorMittal starting due diligence on Macarthur Coal, the
spotlight has been thrust once more onto the market for PCI coal. We assess
market dynamics and trends, and note that an ongoing push to replace coke
with PCI in the blast furnace could well see these coals narrow their discount
to hard coking coal over time.
Latest news
Base metals has a quieter day on Thursday, as the market digested a second
day of congressional testimony from the Federal Reserve chairman which
contained a caveat that it was not yet ready to loosen the purse strings again.
This did not stop gold climbing to another record of $1,591/oz and silver
jumping 7.2% to $39.4/oz, while copper, aluminium and zinc slid.
The latest World Steel Dynamics SteelBenchmarker assessment has
reported further steel price falls over the past fortnight, with US hot rolled
coil falling $24/t to $810/t. This marks a reversion to levels last seen right
at the start of the year. Meanwhile, EU hot rolled coil fell 4.4% to $763/t
(but only 2.5% in Euro terms) and the World Export price fell 1.4% to
$708/t. We now believe prices are getting close to bottoming out in the
steel space, however it will take resumption in apparent demand growth
post the Northern Hemisphere summer to see strong positive price action
in developed markets.
Rio Tinto reported Q211 production results, with iron ore output up 10% QoQ
to 57.5mt, back at capacity after being weather afflicted in Q1 while copper
output totalled 147kt, down 2% QoQ. Hard coking coal output fared less well,
up only 9% QoQ as recovery lagged after the flooding was hindered by a
longwall change at the Kestrel mine. Full year guidance for iron ore was
reduced to 240mt (from 244mt) and that for hard coking coal down to 8mt
(9.3mt). The results also highlighted that mine grade profiles at the key
Escondida and Bingham Canyon copper mines continue to decline.
In their 2Q11 operations results, mineral sands producer Iluka Resources
reported zircon production 4% up QoQ at 141kt, and rutile production up
17% QoQ at 74kt. As a result, full-year 2011 zircon production guidance
has increased to 550kt from 500kt, and rutile to 275kt from 250kt. The
company indicated that zircon prices were US$1,600/t for the June
quarter, up ~60% from the beginning of the year, with a further price
increase of 35-40% for the third quarter already agreed. Meanwhile,
second half price increases of 70-75% for rutile have been agreed.
China’s Ministry of Commerce has announced a dramatic ramp-up in rare
earth export quota for H2 2011 to 15,738t, up 97% from the 7,976t in H1.
This brings an end to the sequential drops in quotas seen over recent times,
with H2 2010 reduced by 72% and H1 2011 35%, and means the full year
quota for 2011 will be only 0.25% down on 2010. This should provide some
relief to rare earth consumers, who have faced price increases in the order of
twenty-fold for certain rare earth oxides over the past 18 months.
The strike at Freeport’s Grasberg mine in Indonesia ended on Wednesday,
with agreement to start discussions on the 2011-2013 work contract on July
20. Concentrate shipments from stockpile have continued over this period,
such that there has been no direct impact on the market.
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