Crude steel output up in September  Macquarie Research,

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Crude steel output up in September
 Global crude steel production rose by 3% MoM and 10% YoY to 1,503mt
on an annualised basis in September but China‟s output was down MoM.
We review the latest data release from worldsteel.
Latest news
 LME base metals bounced back on Friday, with copper reversing almost all of
Thursday‟s fall on a rise of 6.2%, and most precious metals prices also rose.
There was no obvious catalyst in the news flow – indeed, the only macro data
point of note was actually negative; Germany‟s IFO index of business confidence
dropped one point to 106.4 in October, its fourth fall in a row and lowest reading
since June 2010 – and the rally appeared to be driven by technical short covering
and profit taking ahead of the precarious and unpredictable eurozone crisis
meetings due to take place over the weekend. The last week as a whole was
one for the shorts with all metals, except palladium, losing ground, although
tin lost less than 1%.
 Preliminary port data show Indian iron ore exports during September
remained weak, as anticipated. Shipments totalled 3.46mt in the month, up
0.2mt sequentially as the monsoon rains eased, but down 11% YoY, leaving
shipments into the seaborne market this year to date trailing by 18.1mt from
the corresponding period of 2010.
 At Macquarie‟s China Commodities Tour in Shanghai on Friday, Vale
estimated that up to 15% of the iron ore that it sells into China on a contract
is at risk of default given the recent drop in the spot price. However, it said
that the shift to CFR sales (now 65% of volumes) reduces the risk of a
backlog through the chain impacting mine output as was the case in late
2008. Vale also confirmed that while the quarterly contract price based on a
Q-1M lag still applies to European, Japanese and Korean customers, into
China it is selling at a provisional price with the final price based on the
average spot price in the current quarter.
 In zinc we are receiving more and more reports from industry sources that
Chinese mines, which had first responded to falling prices in recent months by
holding back some sales of concentrates, are now scaling back production in
response to the more protracted price weakness that has developed, notably in
Hunan and Inner Mongolia, the country‟s largest zinc producing provinces
that together account for about one-third of total zinc mine output. This is
reflected in falling spot treatment charges for zinc concentrates imported into
China, which are now at their lowest levels in well over a year, as local
smelters seek alternative sources. Current zinc prices are thought to be
below cash production costs for a material proportion of the country‟s mine
output that comes from small-scale, low-grade operations. Meanwhile, as
flagged in Thursday‟s Commodities Comment, we think that zinc stocks in
China have been falling and we note SHFE‟s latest stock report showed the
eighth consecutive weekly stock draw while stock cancellations continued to
increase, leaving open warrants at their lowest level in about a year.
 Also participating in Macquarie‟s China Commodities Tour, the Shanghai
Gold Exchange noted that 27.5% of its contracts are physically delivered with
over 2 million individual clients trading gold via the exchange, which is driven
by the substantial interest in physical gold buying in China. In addition, the
silver contract volume traded was up 529% YoY in Jan-Sep 2011.