August commodity prices show safety in bulks amid a gold rush  Macquarie Research,

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August commodity prices show safety
in bulks amid a gold rush
 We review August’s commodity price and inventory data. With
macroeconomic concern again at the forefront, gold was the star while base
metals suffered. However, those commodities where China sets the market
price again remained extremely solid.
Latest news
 Base metals fell across the board on Friday, as US jobs data for August came
in worse than already subdued expectations, showing zero growth for the
month with a downgrade to June and July figures by 58,000. Lead was the
big loser, falling 3.5%. In contrast, gold gained 3% to $1,875/oz, back on
parity with platinum. This left most base metals relatively flat over the week,
while gold and palladium were up ~5%.
 The week’s Macquarie China Commodities Call contains a review of the
Chinese copper market, noting that H1 2011 real copper demand was
stronger than it appeared. Despite refined copper demand being down ~7%
YoY in Jan-July 2011, we estimate real demand grew by 7% YoY over H1
2011 based on strong output of copper containing finished goods and
reflecting a further destock. However, our recent checks suggest increasing
concern from Chinese traders and consumers. Utilisation rates at fabricators
are falling and their appetite for holding inventory has not recovered given
tight credit and high prices. In our view, this will result in range bound prices
for copper with less potential for an upside breakout.
 Steel Business Briefing has reported that ArcelorMittal is to idle a further blast
furnace in Europe on weaker demand, with the small 500ktpa No.1 furnace at
Eisenhuttenstadt in Germany set to wind down in the coming weeks. In our
view, this highlights two key points in the sector. Firstly, that steel prices are
now at a level where they are cutting into the top end of the cost curve as
demand pulls back, forcing idling of the higher cost furnaces. Secondly, that
steelmakers are becoming increasingly flexible in managing their blast
furnace fleet, with the furnace only having been relit in March. We believe this
ability to adapt supply is critical for steelmakers to manage cyclical risk.
 McCloskey has reported that BHP has tabled hard coking coal offers for Q4 in
line with those settled earlier in the week by Anglo Coal. The benchmark
Peak Downs brand is indicated to be at $285/t FOB Australia, with $245-250/t
for the semi-hard Gregory material.
 Almost a month after the two-week strike by workers ended on August 5th, the
force majeure on concentrate shipments from the world’s largest copper mine
–Chile’s Escondida – has been withdrawn. This followed close on the heels
of confirmation that the threat of industrial action at the country’s Collahuasi
mine had also been avoided. Despite this, as noted in one of the articles
contained in today’s report, Chilean copper output continues to struggle.
 Reuters has reported that a preliminary deal for the Japanese aluminium
premium for Q4 has been agreed at $118/t. This would be down marginally
from the $120/t received in the July-December quarter, and the first fall in a
year, but still represents a level close to the all-time nominal high reflecting a
tight physical market.