Macquarie Research, Commodities- PMIs point to loss of manufacturing momentum

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Commodities Comment
PMIs point to loss of manufacturing
momentum
Feature article
 We review July’s PMIs data releases, which were weak in the US and EU,
suggesting a sharp loss of momentum in manufacturing activity. The China
PMI was at similar levels to last month, with 2H likely to see an improvement
from the current seasonal low.
Latest news
 Major LME base metals prices fell on Monday, with the exception of tin which
was unchanged, following mainly disappointing readings from the latest set of
PMI leading indicators, notably in the USA, and ongoing worries over US
government debt ratings. Copper closed almost 2% down on the day, despite
the ongoing strike at the world's largest copper mine, Escondida, in
Chile. Lead and nickel recorded similar falls.
 Precious metals prices were mixed with gold and silver falling but PGMs
rising, led by palladium with a gain of 2.2% while platinum closed within a
whisker of $1,800/t.oz.
 The strikes by South-African coal miners have come to an end, with the
Chamber of Mines stating they expected employees to return to work
tomorrow. Wage increases have ranged from 8-10% according to McCloskey
Coal.
 Spot ferrochrome prices are starting to rise, following a steep fall over the last
four-to-five months. In China, latest spot prices for HCFeCr imports are
reported at 100-102c/lb CIF, compared with 97-98c/lb during most of
July. However, the market remains ~10% below its peak in February and it
remains to be seen whether this upturn can be sustained.
 Zhu Jimin, the President of the China Iron and Steel Association (CISA), has
confirmed that China is about to promote its own iron ore index. This would
consist of two parts; a domestic index and an import index. The domestic iron
ore price index will be based on the price of iron ore concentrates (dry basis)
in 14 provinces/cities and 32 mining regions. The imported iron ore price
index is developed on data from members of CISA and China Chamber of
Commerce for Importers and Exporters of Metals, Minerals and Chemicals,
with reference to spot price in 8 major ports.
 The final “China Iron Ore Price Index” would be the weighted average of these
two sub-indices. The expectation is that, after approval from various
government departments, the index would come to market later this year. It
remains to be seen whether such an index could gain significant market share
from the established providers. In our view, the logic and robustness of the
methodology will be key; if traders and producers based outside of China can
be convinced that the index has been correctly structured and price discovery
is transparent, there is no reason why trades cannot be settled against it.
 Taiwan’s largest stainless steel producer, Yieh United Steel, has raised prices
for its 300-series material by $100/t for August delivery, on the back of rising
nickel costs. As a result, 304 2B CRC offers are now $3,500/t CFR East Asia.