Chinese demand part 1: Mixed signals from end-use indictors Macquarie Research,

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Chinese demand part 1: Mixed signals
from end-use indictors
 As concerns rise over the health of western world economies, the near-term
outlook for Chinese demand is as important as ever. Over the next two days
we will focus on China’s demand indicators, looking first at the end-user data
and tomorrow at the production, trade and apparent consumption data for the
major commodities.
Latest news
 Copper (1.8%), zinc (2.4%) and lead (2.4%) were strong in Thursday trading
in a day that was largely void of fresh macro news, with support provided by
the LME-SHFE arbitrage, which favours stronger Chinese imports at present.
 The CME has raised margins for speculators in August, with maintenance
margins rising from $5,500 per contract to $7,000. Initial margins will also rise
from $7,425 to $9,450 at the end of trading on 25 August. The Shanghai Gold
Exchange has also made a similar move, raising the deposit ratio for gold
contracts to 12%.
 While this may have contributed to gold’s recent pullback at the margin, the
bigger driver appears to be a little stability in markets more broadly, with bond
yields also rising from their lows. The risk in the near term, however, still
appears to be that markets will be disappointed by incoming information from
Europe and the US.
 Various news services have reported that Anglo American has settled
benchmark hard coking coal contracting prices at $285/t a tonne for the Oct–
Dec quarter. This is down from $315/t in 3Q and below recent spot market
assessments at ~$300/t, although it is in line with our expectations. Anglo has
also reportedly settled PCI pricing at $208/t a tonne, maintaining the 73% ratio
of the benchmark hard coking price achieved last quarter.
 Steel sheet prices have started rising in a number of markets, according to the
latest data from WSD SteelBenchmarker. HR coil export prices are reported to
be up by $15/t from early-August to ~$695/t FOB. Domestic prices in China and
Europe are also up, while the US market appears at least to have found a floor,
with prices unchanged from early-August, and we expect prices here, too, will
start moving up to lift operating margins from recent unsustainably low levels.
 Impala platinum reported stronger output in the year ending in June, with
platinum sales rising 9.7% QoQ and 19.3% YoY in 1H11, excluding third-party
purchases and toll refining. The chunky rise in sales did include some
reduction in inventory, with Implats expecting production to drop 7.6% in the
next FY, with sales likely to be down by a larger magnitude.
 Chinese coastal coal freight, which is a useful leading indicator of domestic
pricing, has edged higher over the past two weeks, with the QHD-Guangzhou
assessment rising 6% to RMB52/t. Chinese IPPs will start to think about
stocking for winter, with the Daqin railway to undergo maintenance for 20–30
days starting on September 20. Coal stocks currently stand at around 15 days
of consumption.