China’s October trade and production data:: Macquarie

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China’s October trade and production data
 The latest Chinese trade and production data for October suggest a pullback
in apparent demand during the month, as net imports of the major base
metals and bulk commodities fell. Rather than any drop in real demand or
significant destocking, we believe this is more likely to have been the usual
Golden Week effect in the month leading to lower than usual reported imports.


 Chinese aluminium production fell by 1.4% MoM in October to 1.29mt (15.2mt
annualized), compared with the peak of 1.42mt (17.4mt annualized) in June
this year. Chinese aluminium production has been hurt badly since the
energy-saving campaign began at the end of August this year - we estimate
almost 2.0mtpa of smelting capacity across China has been shut down. So far
there is no indication that this lost capacity will be restarted anytime soon, with
another circular issued by the central government last week reiterating their
intention to enforce energy saving cuts until the end of the 11th 5 year plan.
 The cutbacks in supply along with sustained demand from the domestic
market since September have led to a continuous drop in aluminium inventory
in China, despite the SRB selling of aluminium since early November. We
believe reported aluminium inventory will keep falling in the next 1-2 months,
providing solid support for Chinese and global aluminium prices. Reported
inventory is currently equivalent to about 15-20 days of Chinese demand.
Assuming no further release of material from the SRB warehouses, we expect
reported stock to fall to the level of 10-12 days of consumption by the end of
the year.
Industry news
 The Shanghai Futures Exchange (SHFE) has said that it will raise margins
and widen daily price move limits on its contracts, including copper, zinc and
aluminium, from 30th November. The settlement margin on aluminium
and copper will rise to 10% (from 7% and 8.5%, respectively) and on zinc to
12% (from 8%). The daily limit on price moves will increase to 6% (from 5%).
 NDRC has ordered coal miners to stabilise their selling prices and directed
local governments not to limit supplies to other provinces, according to
Reuters reports. Thermal coal prices at QHD now stand at Rmb815/t ($122/t)
for 5500kcal coal, up Rmb100/t ($15/t) MoM. The NDRC called on the stateowned
coal miners to "boost self-discipline," and local governments were
ordered to end all restrictions on coal sales to other provinces. We believe the
government’s growing concern over inflation will potentially cap any major rise
in coal prices from this level.
 Chinese construction steel prices moved up strongly this week, more than
recouping the losses from last week. Rebar prices were up 1.9% WoW to
RMB 4,500/t (US$566/t ex VAT), the highest level since August 2009. Hot
rolled coil prices were unchanged this week at RMB 4400/t ($566/t ex VAT),
still RMB 300/t below the April peak and below the rebar price for the first time
since the end of 2009. With inventory falling slightly, the flat product market
finally appears to have achieved balance. Mills are reporting a pick-up in
orders from the machinery and auto sectors, suggesting real demand is
improving.