Commodities Comment -- Impressions from India Macquarie Research,

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Commodities Comment
Impressions from India
 Macquarie’s 6th annual India Commodities Conference took place this week,
with corporate attendees much more subdued and realistic about growth than
is usually the case. There was also a lot of concern amongst investors about
the effect of thermal coal prices given problems with large import-based
power plants at the current time.
Latest news
 LME metals gave back early Friday gains to close down on the day (with the
exception of aluminium) amid low volumes. Over the week as a whole, nickel
outperformed (+1.7% WoW) while gold and silver both recorded falls of over
3%. Meanwhile, LME inventories of nickel (-1.4%) and tin (-4.2%) saw large
relative draw downs in the week.
 Japan’s Federation of Electric Power Companies has reported a further drop
in nuclear capacity utilisation to 26.4% in August, as further post-Fukushima
shutdowns have come into effect. This is the lowest level recorded, and
represents a further large drop from August (33.9%) and vs. the ~70% rate at
the start of the year. As a result, thermal generation (coal + gas + oil) now
accounts for over 75% of total electricity produced in the country. We see
Japanese imports of thermal coal rising 6.4mt next year as further thermal
capacity comes back online, following a 7.4mt drop in 2011. However, we
expect Japan’s uranium demand to drop 36% YoY in 2011, which has pushed
the ex-China market into surplus despite supply disappointments.
 German automotive industry association VDA has reported that new
passenger car sales in major global markets rose 3.3% YoY in August to 3.75
million units. All regions contributed to gains, with 9.9% unit sales growth in
China and 2.1% growth in the US underpinning the growth. This should
provide a boost for sentiment in flat steel and in particular PGM markets,
where we reiterate the markets ex-investment demand remain in deficit.
 The latest numbers from the International Nickel Study Group suggest a
strong nickel market in the first seven months of 2011. The INSG numbers
show an estimated 5.9% YoY growth in nickel use in the first seven months of
the year, driven by an 18.3% YoY growth in Chinese use. Its production
numbers show 8.7% YoY growth and the numbers imply a deficit between use
and production of 8kt.
 Macquarie attended the CBI China 6th Lead and Zinc Summit in Zhengzhou
on 15-16 September. The overall sentiment in the market is "not good but not
bad" (consistent with feedback from the recent Metal Bulletin Aluminium
conference), with the most focus on macro uncertainty and policy risk in
particular for lead battery industry. Unsurprisingly, worries were more on the
demand side for lead than zinc in the short term.
 Chinese port stocks of manganese and chrome ore were 3.71mt and 2.94mt
(gross weight, wet basis) as of mid-September, according to local media
reports. These data suggest that there has been only a very modest
reduction in stock levels held in port since the inventory cycle started to turn
and that stocks could continue to weigh on prices for some time to
come. Indeed, IMnI data published recently suggest port stocks of
manganese ore actually ticked up once more in August, rising by 60,000t
(2%) MoM to 3.91mt.