Chinese activity indicators – key sectors steady while inflation falls ::Macquarie Research,

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Chinese activity indicators – key
sectors steady while inflation falls
Feature article
 The latest round of Chinese macroeconomic data showed a favourable
combination of steady growth in key sectors and weaker inflation.
Latest news
 Base metals finished the week poorly as markets sold off heavily on Friday as
concern grows about the state of further funding for Greece and what that
might mean for broader European sovereign debt markets. Copper and
aluminium both fell 2.8% WoW. Precious metals were also weaker over the
week, with intra-day volatility in gold rising sharply. A stronger USD has also
not helped both base and precious metals.
 Indices of physically delivered coal prices rose over the week, with Newcastle
up 1.5% WoW to $124.32/t. Low CV coal pricing also rose, in line with the
more bullish sentiment seen at Chinese coal conferences during the week.
The McCloskey Sub-bit marker (4,900 NAR) settled at $90.30/t, up 0.7%
WoW. Paper markets sold off heavily in line with other financial markets on
Friday, with Cal‟12 currently pricing at $127.25/t for API#2 and $122.25/t for
API#4.
 The Indonesian government has moved to dispel concerns about the
imminent release of potential ban on low-grade coal with government officials
suggesting any policy would be delayed until technology to lift low rank coal to
a minimum heating value of 5,600 kcal/kg was commercially available. With
the technology currently a long way from commercial feasibility, we think any
implementation of this kind of policy is unlikely in the foreseeable future.
 Data from shipping sources suggested Australian coal exports improved in
August. Coking coal shipments rose to 157mt annualised from a weak 128mt
in July and was the second best month seen this year. Steam coal has been
strong in the last 3 months, averaging 152mt annualised, with shipments from
the NCIG appearing to improve from a slow start to the year.
 Feedback from our sources in China indicates that nickel import demand is
currently surging due to an ongoing shortage of nickel pig iron (reflected in the
nickel pig iron price exceeding that of primary nickel). Imports of all forms of
primary nickel as well as stainless steel scrap are said to be very strong.
Metal Bulletin reports that Baosteel started reducing its use of nickel pig iron
in favour of primary nickel from late July. There are also reports that imports
are surging due to a large Chinese trading company building nickel stocks
ahead of the launch of a nickel ETF (exchange traded fund) in early 2012 with
reports of the size of this ETF varying from 10-30,000t. These factors make
us more bullish about the nickel price outlook in the short run, even though we
maintain a forecast of a large 2012 surplus between supply and demand.