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Iron ore under pressure – look for
cracks not chasms
Feature article
In the recent commodities sell-off, iron ore has been the surprise safe haven,
with prices holding to the range they have traded in throughout 2011. Several
China-led factors are now creating further downward pressure on the iron ore
market, and we are starting to see the first signs of price cracks appearing.
However, with demand set for a seasonal leg-up, we reiterate that prices
remain fundamentally supported above general market expectations.
Latest news
Despite an afternoon rally, LME base metals dropped again on Monday as the
economic cloud prevailed. Copper dropped 1.3% to $7,251/t, while lead
plunged 4% — both lead and zinc are now below $1,900/t. Meanwhile, the
‘dash for cash’ saw precious metals hammered, with gold fixing below
$1,598/oz and silver dropping 14.4% as the dollar continues to strengthen.
The German IFO business climate index fell to its lowest level since June
2010, driven lower by a sharp deterioration in the expectations component,
especially in the manufacturing and construction sectors. This data suggests
a significant weakening in 3Q 2011 GDP growth.
Cancellations of copper stocks held in Korean LME warehouses have
increased fourfold in the last two weeks. Latest LME data show 12,475t of
copper stocks cancelled as of 23 September, and we think this metal is
destined for China, attracted by the positive arbitrage between SHFE and
LME copper prices and the recent upturn in physical premiums in China.
In zinc, we note with interest a significant rise in cancellations of stocks held in
SHFE warehouses in recent weeks. While the total level of zinc stocks held
has fallen by less than 10,000t since its most recent peak on 19 August, stock
cancellations have increased by over 50,000t and on warrant zinc stocks
are now at a seven month low.
Qatalum, the primary aluminium smelter joint venture between Norsk Hydro
and Qatar Petroleum, has reached full production of 585,000t at an
annualised rate. The owners had originally intended the plant to reach full
output by the end of 2010, following its start up in December 2009, but the
ramp-up was delayed owing to problems related to power supplies and the
water cooling systems.
On Monday, Macquarie published the initial results of a new proprietary
survey of steel market participants in China. The survey interviews 40 mills,
30 steel traders and 30 iron ore traders, asking about sequential changes in
demand, inventory, production, profitability and raw materials. The steel mills
included have a combined capacity of 340mtpa crude steel (~45% of total
market). In the survey, industry participants’ increasing concerns caused the
Macquarie steel industry sentiment index to fall to 59.5 in September from
76.1 in August – however, this still reflects net positivity in the market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Iron ore under pressure – look for
cracks not chasms
Feature article
In the recent commodities sell-off, iron ore has been the surprise safe haven,
with prices holding to the range they have traded in throughout 2011. Several
China-led factors are now creating further downward pressure on the iron ore
market, and we are starting to see the first signs of price cracks appearing.
However, with demand set for a seasonal leg-up, we reiterate that prices
remain fundamentally supported above general market expectations.
Latest news
Despite an afternoon rally, LME base metals dropped again on Monday as the
economic cloud prevailed. Copper dropped 1.3% to $7,251/t, while lead
plunged 4% — both lead and zinc are now below $1,900/t. Meanwhile, the
‘dash for cash’ saw precious metals hammered, with gold fixing below
$1,598/oz and silver dropping 14.4% as the dollar continues to strengthen.
The German IFO business climate index fell to its lowest level since June
2010, driven lower by a sharp deterioration in the expectations component,
especially in the manufacturing and construction sectors. This data suggests
a significant weakening in 3Q 2011 GDP growth.
Cancellations of copper stocks held in Korean LME warehouses have
increased fourfold in the last two weeks. Latest LME data show 12,475t of
copper stocks cancelled as of 23 September, and we think this metal is
destined for China, attracted by the positive arbitrage between SHFE and
LME copper prices and the recent upturn in physical premiums in China.
In zinc, we note with interest a significant rise in cancellations of stocks held in
SHFE warehouses in recent weeks. While the total level of zinc stocks held
has fallen by less than 10,000t since its most recent peak on 19 August, stock
cancellations have increased by over 50,000t and on warrant zinc stocks
are now at a seven month low.
Qatalum, the primary aluminium smelter joint venture between Norsk Hydro
and Qatar Petroleum, has reached full production of 585,000t at an
annualised rate. The owners had originally intended the plant to reach full
output by the end of 2010, following its start up in December 2009, but the
ramp-up was delayed owing to problems related to power supplies and the
water cooling systems.
On Monday, Macquarie published the initial results of a new proprietary
survey of steel market participants in China. The survey interviews 40 mills,
30 steel traders and 30 iron ore traders, asking about sequential changes in
demand, inventory, production, profitability and raw materials. The steel mills
included have a combined capacity of 340mtpa crude steel (~45% of total
market). In the survey, industry participants’ increasing concerns caused the
Macquarie steel industry sentiment index to fall to 59.5 in September from
76.1 in August – however, this still reflects net positivity in the market.
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