Global IP and leading indicators :: Macquarie Research,

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Global IP and leading indicators
Feature article
 The latest batch of leading indicators was a little better than expected against
the current concerns. We also take a look at reported IP to test how the
leading indicators are performing against reported activity.
Latest news
 While base metals were weaker in Thursday trading, iron ore prices continued
their gradual upward climb, with The Steel Index 62% Fe reference price CFR
China rising above $180/t for the first time since early May. We reiterate that,
while there is greater availability of Australian and Brazilian material to
Chinese buyers at present, imports from India remain extremely low. Thus,
with Chinese steel output remaining at a ~700mtpa run rate and with small
mills flat out to meet rebar demand, the iron ore spot market remains
undersupplied.
 Chilean refined copper exports rose by 10% MoM in July to 262.35kt,
although they were still down 7.8% YoY in the first seven months of the year.
Based on the much lower July Chilean copper production data, we estimate
that Chilean refined stocks may have fallen by 50kt to meet the export
number. Of note is that Chilean exports to China rose to 104.3kt, the highest
level for the year and up 39% MoM. This suggests that Chinese imports in
August are likely to be close to 230kt (when reported), up from 194.28kt in
July. Based on strong buying activity in early August, we think China's
September imports could well approach 250kt.
 Meanwhile, the China Iron and Steel Association will start publishing its longawaited
weekly iron ore index on 1 October. The index will collect data from
all domestic mines and 35 ports, unlike the current indices, which are based
solely on imported material. No further details of the methodology have been
given, and the Association has noted that it is not mandatory for steelmakers
to use the index.
 McCloskey has reported that a number of October-December FOB Australia
met coal benchmarks have now been agreed to between Anglo Coal and
various East Asian steel mills. The premium German Creek brand is priced at
$285/t, Moranbah North material at $280/t, while the ultra low-vol Foxleigh
PCI is at $208/t and Capcoal PCI at $204/t. Thus, at 73% of the hard coking
coal settlement, PCI continues to trade at the bottom of the usual range in
relative terms. McCloskey also noted that Nippon Steel has held back on
settlement thus far.
 Russia's Mechel has commenced commercial open pit mining at its blue
riband Elga coal complex in the east of the country. The company expects
200-300kt of ROM coal production this year, with output shipped to other
Mechel washing plants ahead of Elga's on-site commissioning next year.
Long-term sales targets from the mine remain at 5mtpa of thermal coal and
8mtpa of hard coking coal – one of the biggest single projects in the met coal
market. So far, the company has built 209km of the 315km railway to connect
Elga to the main Baikal-Amur rail line. We expect output to be targeted at the
Asian market, and currently model 2mtpa of met coal in 2013, rising to 7mtpa
by 2015.