Copper supply side still struggling ::Macquarie Research,

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Copper supply side still struggling
Feature article
 While the short-term attention has decisively shifted to demand side risks on
the downside, the poor performance of copper supply should not be
overlooked. We review Chilean production so far this year as an example of
the problems facing the industry.
Latest news
 Despite further ups and downs during the day’s trading, LME metals finished
relatively flat on Thursday compared with recent days. After spending time
below $7,000/t, copper recovered to $7,210/t. Palladium has another big selloff,
down 3.6% to $621/oz.
 The sharp fall in copper prices over the past week has squeezed Chinese
traders’ profitability on copper imports. Including the trade premium of $150/t
CIF China, the profit of delivering the copper cathodes from the bonded
warehouse through customs has come down from roughly $100–150/t the
previous week into negative territory today. Our checks indicate bonded
warehouse inventory in China has come down significantly in the month of
September to 300kt (or below) as a result of Chinese buying for arbitrage
trading rather than real consumers buying/restocking. LME copper cancelled
warrants also rose significantly in the month of September to 31kt as of 29
September compared with only 6kt at the beginning of the month. We believe
Chinese copper imports will continue to increase in September and in 4Q11
on the back of this arbitrage buying. However, inventory will be building up on
the SHFE registered warehouses before the end of the year rather than being
consumed at the end uses due to a slower growth rate of consumption looking
ahead as of result of continued tightening in the economy.
 Coal inventory in China’s QHD Port continued to drop, registering at 4.7mt – a
new low since this year – by 28 September. Since 21 September (the start of
maintenance work on the Daqin Railway), coal stock decreased at a rate of
300kt per day. As a result, over the past nine days coal destocking has
accumulated to 2.403mt in QHD Port, which indicates a larger impact from
Daqin maintenance this time vs the last one in April, when the coal stock
dropped by the same amount during one month.
 In the Australian coal space, coal companies have been continuing to secure
port tonnages. Whitehaven Coal has announced an additional shipping quota
of 8.4mtpa has been secured at Newcastle from 2012–2016 to facilitate
Gunnedah Basin expansion. Meanwhile, Aston Resources has secured up to
7.1mtpa under a NCIG Substitute Shipper Agreement with an existing
operator for their Maules Creek project from 2013–2016. This is in addition to
a 1.7mtpa allocation at PWCS from 2013 and helps to overcome the
infrastructure access issues facing the project previously.
 During the third day of its analyst site visit to the Pilbara, BHP Billiton affirmed
it commitment to the Port Hedland Outer Harbour and has its long-term hub
strategy and marketing approach around exactly that. Furthermore, the
double tracking of ~285km of the Newman rail trunk has unlocked
considerably greater rail capacity and cut the average journey time from mine
to port by around an hour.