Commodities - Ferrochrome – pricing on fear or fundamentals? :Macquarie Research,

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Commodities Comment
Ferrochrome – pricing on fear or
fundamentals?
 The benchmark contract price for ferrochrome has been rolled over from
Q3 to Q4 2011 at 120¢/lb DDP Europe. We review the outcome and consider
the read across for other commodities markets, focusing in particular on the
contrast with recent price performance in the nickel market, which shares a
common customer base with ferrochrome.
Latest news
 Most LME base metals prices were up in trading on Wednesday as market
sentiment strengthened and the euro continued to climb with political parties in
Slovakia reaching agreement to approve the enhanced EFSF, paving the way
for a second vote this week that will complete its ratification process across the
17 eurozone countries. Copper closed with a gain of 3.3% on the day to lift
the cash price back above $7,500/t. Meanwhile, Chinese physical premiums
remain robust on the back of stronger local buying, as we discussed in
yesterday’s commodities comment, and metal continues to be withdrawn from
Asian LME warehouses bound for China. Aluminium lagged the market as a
whole after a disappointing earnings report from Alcoa.
 Precious metals prices were also up across the board. Silver saw the strongest
advance on the day, rising 4.8% to within a whisker of $33/t.oz, while gold
gained 1.1% to $1,682/t.oz.
 High frequency data from China's Iron and Steel Association (CISA)
suggest crude steel production at the end of September rose 0.6% from
the middle of the month to 704mt on an annualised basis. Combining the
data points for September suggests that total production for the month
rose 0.6% MoM. Contributing to this, CISA member mills (which includes
all the larger producers) saw output increase 1.6% MoM. This implies the
non-CISA members (China's smallest mills) saw output drop 10% MoM.
While this would fit with the sharp contraction in construction steel
margins, we note that this data series can be unreliable.
 After falling 5% over the previous two weeks, US crude steel output bounced
3% last week according to the latest American Iron and Steel Institute data.
This equates to 86.5mtpa but this is still only level with the run rates reached
at the end of February, highlighting that the recovery seen earlier this year
has stalled.
 Freeport-McMoRan reports that it is succeeding in raising output at its
Grasberg copper mine in Indonesia, where workers have been on strike since
mid-September. The company claims that production is now running at
~4,000t of copper concentrates per day (gross weight basis), which would be
equal to almost two-thirds of full production. However, some commentators
have expressed doubts about the sustainability of such output levels with well
over half the workforce on strike. Grasberg is the world’s second largest
copper mine and produced ~625,000t of copper-in-concentrate in 2010.
 Industrial Minerals reports that Iluka has increased zircon contract prices for
Q4 2011 by 10% to 2,420/t FOB Australia. This is a strong result considering
current market concerns over the outlook for the Chinese property sector, which
is the main end use market for zircon. Zircon prices are now up by well over
100% YoY.