LME Week preview – fear and uncertainty ::Macquarie Research,

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LME Week preview – fear and
uncertainty
Feature article
 As the great and the good of the metals world gather in London for the annual
LME Week festivities, we review the key issues we will be focusing on amid
the current market turbulence.
Latest news
 Base metals took another hit on Friday as a further bout of liquidation took
hold. Nickel took the biggest hit, down 5.7% to $17,570/t, while copper will
enter LME Week at the $7,000/t level – the lowest in over a year.
 The final September HSBC/Markit PMI came in unchanged from August
levels at 49.9, with confirmation that input costs increased at the fastest pace
in four months. Meanwhile, the final results from the Market News
International China Business Sentiment Survey for the month showed a
reading of 43.3 for credit availability. With this, the index remained below 50
for a twelfth consecutive month, rounding out a full year of credit contraction.
Expectations of credit conditions at year-end also remain sub-50. The general
picture depicted by the PMIs has remained largely unchanged – growth
seemingly stabilizing at weak levels. More worrying is the inflation pressure
reported by both surveys' respondents. With tightening policies feeding
through the economy, however, our China Economic Team expects inflation
to soften from here. With this, downside risks to growth remain the major
issue at the moment.
 Business activity in the US Midwest grew more than expected this month,
buoyed by new orders and a jump in employment. The Institute for Supply
Management-Chicago business barometer rose to 60.4 in September, from
56.5 in August, and above consensus expectations of 55.5.
 The Indian government approved the new MMRD mining bill concerning
royalties, which now goes before parliament for the next round of debate. The
new draft proposal calls for a 26% share of profits for coal mining; for non-coal
mining, the new liability is equivalent to royalty paid. The monies raised will go
for the development of local communities that were the traditional land owners
of the mining area. For thermal coal, the net effect is likely to make domestic
coal increasingly less competitive compared with imports. Meanwhile, for iron
ore, total taxation levels now exceed 70%. At these levels, many East Coast
exports are uncompetitive, and this bill would compound our view that exports
should continue to decline.
 McCloskey‟s has reported that a consortium of Rio Tinto, Minas de Revuboe
and Ncondezi Coal have identified an "alternative rail and port solution" for
exports out of the country, which could see development of a Capesize port
north of the mouth of the Zambezi river in Mozambique. The greenfield port
site is located 500km from Tete and could see development of a deep water
port "with expandable capacity from an initial 25mt/yr to 100mt/yr."
 Industrial Minerals has noted that zircon prices have continued to rise, with
levels for standard grade material rising to $2,500/t FOB Australia currently
compared with $2,100/t in July. However, imports into China have started to
slow, again indicating a degree of softness in the construction sector.