Copper: Fundamentals crucial in a slowing global growth environment :: Macquarie Research,

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Copper: Fundamentals crucial in a
slowing global growth environment
Feature article
 We review the history of copper price direction when global GDP growth rates
have been slower than the preceding year. While the relative magnitude of
growth has influence on price movements, more important is the relative
supply-demand changes as measured via change in stock levels. Thus, while
the potential for slower overall growth in 2012 continues to grow, we reiterate
that the strong fundamentals in the copper market will likely see a higher
average price in the year (albeit with some of the upside premium removed).
Latest news
 Base metals dropped again in Wednesday LME trading, as plans for
expansion of the European Financial Stability Fund ran into problems.
Copper fell 1.6% to $8,603/t, close to 2011 lows.
 The latest price SteelBenchmarker price assessment by World Steel
Dynamics showed further stability in global steel prices, with the majority flat
over the past two weeks. The exception was US hot rolled coil, which rose
5.1% sequentially to $768/t, arresting three months of consecutive falls.
 Meanwhile, prompt ARA and Richards Bay thermal coal prices have softened,
with DES ARA prices for November trading at $121/t and RB falling to
~$115/t, as stockpiles at EMO, Europe’s largest coal terminal, rose to a 10-
month high of 3.3million tonnes.
 Chinese coal imports have been maintained at a high level in August
according to preliminary data. Total imports were reportedly 16.1mt vs. 17.6mt
in July. Domestic Chinese prices also remain firm, with QHD prices posting
the first rise ahead of Daqin railway maintenance, up RMB5/t to RMB830/t.
 Latest data from Eurofer indicates that Western European stainless steel
production was down 1.5% YoY in July 2011 at 536kt, bringing production in
the first seven months of this year to 4.64mt, unchanged on the first seven
months of 2010. Reports from the industry indicate that after a booming first
quarter (when production was up 7% YoY and 18% QoQ), there was a
significant slowing from April-August, due mostly to destocking – 2Q
production was down 6% YoY and we estimate that 3Q was down marginally
YoY. Mills saw a strong rebound in orders across Europe in July, a
weakening in August but some small recovery in recent weeks. There is a
great deal of nervousness about the economic outlook and also concern
about rising imports from Asia, but as yet no real downturn.
 The global zinc market was in surplus by 237,000t in the first seven months of
2011, according to the latest data from the International Lead and Zinc Study
Group. The global lead market reportedly ran a surplus of 127,000t over the
same time frame. However, we continue to think that ILZSG's data overstate
the surplus in the zinc market.
 Freeport McMoRan’s Indonesian mine workers' union had set a deadline of
midnight on Wednesday to make a revised pay rise offer or it would proceed
with a month-long strike. This would be the second strike in three months at
Freeport Indonesia's Grasberg mine.