No fundamental copper worries:: Macquarie Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


No fundamental copper worries
Feature article
 The recent rally in copper has led many to question whether the current price
is justifiable in the uncertain macroeconomic climate. In our view, while the
recent rally may be slightly premature, with physical buyers still reticent at
prices more than $9,000/t, there is no problem with copper market
fundamentals. With mine supply continuing to struggle and inventories in
China still trending down, copper remains the base metal best placed to break
out on the upside on a three-month view.
Latest news
 Aluminium and zinc were the outperformers on Friday, closing up 2.0% and
1.9%, respectively, as the market digested the latest Greek „solution.‟ The two
also outperformed over the week as a whole, both up 5% WoW, reflecting the
shortage of material actually available to the physical market.
 The MNI survey of business sentiment in China edged slightly higher in July,
with the headline measure of business conditions recording 58.0 vs 57.8 in
June. Meanwhile, new orders (57.1 from 58.4) and production (61.0 from
62.8) weakened slightly MoM. When combined with yesterday‟s sub-50 flash
PMI, this provides further quantitative evidence of slowing economic activity.
 Workers at the world‟s largest copper mine, Chile‟s Escondida, have executed
a 24-hour strike at the 1.1mtpa facility, seeking an $11,000 annual bonus.
This follows similar action at Codelco operations on July 11. While on its own
this strike will have only a limited impact on the market (~2.7kt) and the
potential threat of extension looks unlikely, it does mark a change in strategy
from Chilean mining unions. Previous disruptions have been generally limited
to contract negotiation periods, whereas this is not. Furthermore, agreements
reached by Escondida workers are often seen as the benchmark for other
Chilean operations, and the risk of follow-on action at other facilities is high
(depending on the agreement reached).
 Chinese steel prices were mixed this week, with HRC prices ticking up
RMB40/t to RMB4,805/t ($634/t ex-VAT), as several mills raised list prices.
Higher value-added flat products performed less well, with CRC up just
RMB15/t to RMB5,495/t ($725/t). The premium of CRC over HRC is now at
the lowest level since the 2008 downturn, potentially reflecting softening
demand in line with the flash PMI data released this week, which, at 48.9,
suggested a contraction in the manufacturing sector. Rebar prices were flat
WoW at RMB4,885/t ($644/t).
 Platts has reported that Czech producer New World Resources (NWR) has
agreed to 3Q average coking coal prices at €192/t ($276.5/t), down 9% QoQ.
This reflects a combination of hard and semi-soft coking coal. Meanwhile, the
average coke price dropped 4% QoQ to €378/t. NWR reiterated guidance for
11mt of coal production in 2011. Meanwhile, the IHS McCloskey Prime Hard
Coking Coal market rose $2.2/t in the week to $308.25/t FOB Australia.
 Freeport-McMoran has announced that construction of its 20m.lb Climax
molybdenum mine is 75%, with expected completion early in 2012. At firststage
capacity, the mine will account for 3% of total molybdenum supply and
6.7% of primary mine output. We currently model 5m/lb of output in 2012 and
25m.lb in 2013.