Commodity Market Headline (11th of March)

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Daily Summary of Baltic Exchange Dry Indices

Baltic Exchange	Dry	Index	BDI	843 ( UP 9)
Baltic Exchange	Capesize	Index	BCI	1262 ( UP 2)
Baltic Exchange	Panamax	Index	BPI	1124 ( UP 12)
Baltic Exchange	Supramax	Index	BSI	864 ( UP 12)
Baltic Exchange	Handysize	Index	BHSI	483 ( UP 5)

China stops and starts commodity rally? Not really

This year's commodity rally has ended and magically restarted in just five days, and it's all because of China.
Commodity prices dropped on March 1, with London copper hitting a three-month low of $7,659.50 a tonne, on concern that industrial production in China, the world's biggest buyer of the industrial metal, was losing momentum.
This was because both the official and HSBC Purchasing Managers' Indexes fell to five-month and four-month lows respectively.
The gloomy feeling was amplified by Chinese authorities saying they will take steps to cool property prices, which was interpreted by the market as bearish for construction and, by implication, both copper and iron ore demand.
However, by March 5, all was good again after China's outgoing Premier Wen Jiabao announced record government spending in order to boost consumer-led growth.
Even though China kept its 2013 economic growth target at 7.5 percent, the same as last year's, the market interpreted Wen's comments as positive for commodity demand, and London copper rallied. It was trading at $7,766.75 a tonne in early Asian trade on Wednesday, up 1.4 percent from the March 1 low.
It was the same story with crude oil, with front-month Brent futures dropping to the lowest this year on March 4, weighed down by China and concern over government spending cuts in the United States.
But once again, prices rallied on the positive news and Brent was at $111.61 a barrel on Wednesday, up 1.9 percent from the March 4 low of $109,58.
Of course, nothing fundamental about the Chinese economy has changed in the past week and the story of a modest recovery from last year's slowing in growth remains intact.
It's also not unusual for markets to trade on the 24-hour news cycle and certainly some investors rely on the day-to-day volatility to make money.
But commodity prices would benefit from less of the instant analysis that follows every twist and turn and relatively minor indicator out of China.
RECOVERY ON TRACK
Economic data and political announcements should be sifted for their importance and analysed in terms of how they can potentially change the prevailing consensus.
Certainly the two PMIs confirmed that the recovery remains on track, but unlike the boom after the 2008 global financial crisis, it will be more measured.
The curbs on property have more potential to impact on commodity markets, especially if they do result in a slackening of construction.
But this is far from a definite, meaning that right now the outlook for steel and iron ore demand isn't as assured as it was earlier this year.
In fact, the real estate measures are just another reason to be cautious on iron ore, given the steel-making ingredient's massive rally from a three-year low hit last September.
Spot iron ore .IO62-CNI=SI rallied 83 percent between its low and the recent high of $158.90 a tonne reached on Feb. 20.
It has since declined 8.6 percent to $145.20 and probably has further to fall, given the softer demand growth possible in China and expected supply additions in top producer Australia from the third-quarter onwards.
But overall the outlook for commodity demand in China is one of steady growth, especially against the backdrop of increasing consumer spending and the ongoing urbanisation, which should see at least another 130 million people move permanently to urban areas over the next decade.
What investors outside China have still to come to terms with is that the rates of growth in commodity demand are going to slow, but instead of this being a "bad" thing, it's a necessary function of a maturing economy.
The key thing to remember is that there is still likely to be growth in demand over the medium- and long-term and any volatility is likely short term in nature.
The next risk event comes with the February trade data due March 8, with the possibility of some softer numbers on commodity imports.
However, the numbers will have to be read together with January's in order to get an accurate picture, given that the week-long Lunar New Year was in February this year but in January last year.
The February numbers would have to be exceptionally weak in order to upset the view of steady growth in Chinese commodity demand this year.
Source: Reuters

India to lose money on wheat exports but traders still wary

India's latest offer of more wheat for export is priced below government costs to source and handle the grain, but is still too steep for international buyers, leaving the possibility of extra sales to local bulk buyers.
The world's second-biggest wheat producer on Thursday allowed private traders to export up to 5 million tonnes of wheat from government warehouses but set a floor price of 14,800 rupees per tonne plus taxes.
The government's cost of buying wheat from domestic farmers, plus local levies, transporting the grain to warehouses and storage totals 17,690 rupees per tonne, a government official said - 2,890 rupees a tonne higher than Thursday's offer price.
But even so, private traders such as Cargill Inc, Louis Dreyfus and Glencore will find the floor price too steep to lift government stocks for exports.
"Even if I agree with government's ultra-conservative freight estimates and local taxes, the floor price will translate to at least $300-$305 a tonne, while I can buy from the open market at $290," said a New Delhi-based trader at the Indian unit of a global trading company.
"Take it from me, the response from private traders will be tepid. Why should I buy government stocks at a higher price? It doesn't make any commercial sense," he said.
The 14,800 rupees price was first offered by the government in November 2012 to local biscuit makers and flour millers when it freed up 6.5 million tonnes for them as a means to cut stocks at its overflowing granaries.
"When we are giving wheat to our bulk buyers at 14,800 rupees, which itself is lower than the cost we incur on buying and storing, why should we subsidise foreign buyers as well?" asked a government official involved in policy making.
Biscuit makers and flour millers have so far lifted about 4 million tonnes of the 6.5 million tonnes offered to them. Buying is done through tenders from the state-run Food Corporation of India which can take time to process.
Tenders have also been used to sell 4.5 million tonnes of wheat that the government allowed for exports in 2012. State-backed companies have sold about 3 million tonnes so far.
If private traders continue to disagree and do not lift stocks for exports, the government retains other options.
"There will be some interest by private traders and even if there's no interest, we have other means of liquidating stocks. We can offer more to bulk buyers and allow more for exports by our own government agencies," the official said.
Traders were also concerned that a shortage of rail cars and port bottlenecks could delay cargoes.
The government is keen to expedite shipments and will write to port authorities to give priority to wheat cargoes and request the railways to offer extra cars, the official said.
Source: Reuters

Iron-ore heads for third weekly fall as Chinese buyers cautious

Iron-ore prices were stead on Friday but were on track for a third consecutive week of losses as well-stocked Chinese steel mills mostly kept their hands off spot cargoes with steel demand yet to pick up pace.
Shanghai rebar futures were on course to fall for a fourth straight trading week after hitting near three-month lows on Monday on worries China's latest efforts to cool its property sector may dent demand for the construction steel product.
Price offers for imported iron ore cargoes in China were little changed on Friday, with scant buying interest, traders said.
"There are some buyers who are back in the market, but majority is still quite cautious," said a physical iron ore trader in Shanghai.
Inventory of iron ore among many steel mills in China are probably at about 25-30 days worth of consumption, which remains relatively high, he said.
Benchmark 62% grade iron-ore edged up 50c to $146.30 /t on Thursday, according to Steel Index.
But it is still down nearly 3% for the week having fallen to six-week lows on Tuesday.
Trade data from China showed exports jumped by a fifth in February from a year earlier, more than double expectations, although imports were much weaker than forecast.
CHINA ORE IMPORTS FALL
China's iron-ore imports dropped to a four-month low of 56.42-million tons in February because of the Lunar New Year holiday.
Analysts say high prices may have also turned off some buyers. Iron-ore rose to a 16-month high of $158.90 on February 20, the second time this year that prices neared $160.
"When iron-ore prices reach above $150 /t, steel mills tend to be more cautious," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.
"They have changed their behaviour, they have become quite cautious about buying iron ore in large volumes and they would rather keep their inventory low," said Liu, adding he expects China's monthly iron ore imports to stay at around 55-million to 60-million tons going forward.
Standard Bank expects prices to rally back above current levels later in the month before heading lower.
"We believe that ore prices will trade in the $115 to $160 range this year, averaging $132. Although many are focusing on upcoming supply additions, we believe that these will take significant time to ramp up to full capacity, well into 2014," Standard Bank analyst Melinda Moore wrote in a note to clients.
Iron-ore swaps were also steady on Friday. The April contract traded at $138.50 /t, nearly flat from Thursday's settlement, brokers said.
The most traded rebar contract for October delivery on the Shanghai Futures Exchange was up 5 yuan at 3 937 yuan ($630/t) a ton by the midday break. The contract was down 2% for the week so far.
Source: Reuters

Indonesia to stop exports of power-grade coal

The Indonesian government will gradually stop export of mid and low calorific value coal suited for the power sector from the current year, an official of Indonesia's embassy said Thursday."The 2013 regulations have it that low and mid calorific value coal will not be allowed to be exported from Indonesia. The coal will be used to boost the domestic power sector in the country," economic counsellor of Indonesian embassy in India Otto Riadi said here.
Indonesia had set up its own price standard which was introduced last year, Riadi told reporters on the sidelines of an interactive session organised by Indian Chamber of Commerce here.
So far, Indonesia had been allowing exports of coal lesser than 5300 kilo cal (mid calorific value). But that would stop, he said.
He said following the Indonesian government move, coal traders who did not have any mines in that country would be affected.
Indian companies which owned mines in Indonesia would be allowed to import such power-grade coal in a limited way, he added.
Mining contributed a substantial proportion to the country's GDP, Riadi said.
He also said Indonesia is also inviting Indian investments in the country's power sector.
Source: PTI

Copper Trims Weekly Advance as Imports Decline, Stockpiles Rise

Copper fell in London after imports into China, the biggest buyer, tumbled to the lowest in 20 months and as stockpiles of the metal expanded.
Chinese shipments of refined metal, alloy and products were 298,102 metric tons last month, the General Administration of Customs said today. Stockpiles in LME-tracked warehouses climbed 5.9 percent to 509,425 tons, the highest level since April 15, 2010. Inventories, up 59 percent this year, grew on deliveries in Singapore, Gwangyang, South Korea, New Orleans and the Belgian city of Antwerp.
“There is a lot of metal in China,” Robin Bhar, an analyst at Societe Generale SA in London, said by phone today. “We should see imports slowing this year.”
Copper for delivery in three months dropped 0.4 percent to $7,731.50 a ton by 11:10 a.m. on the LME, paring its first weekly gain in four. The metal has added 0.4 percent this week. Futures for delivery in May declined 0.4 percent to $3.5065 a pound on the Comex in New York. Futures trading volumes in New York were 23 percent lower than the average in the past 100 days for the time of day, according to figures compiled by Bloomberg.
Refined copper supply will exceed demand by 176,000 tons this year, the most since 2009, according to Credit Suisse Group AG. Imports of refined copper by China will drop 11 percent this year, according to Barclays Plc.
“There is no question we are in a situation where the market is in much more oversupply,” Jim Lennon, an analyst at Macquarie Group Ltd. in London, said by phone today. “Published stocks have gone higher.”
Aluminum, nickel, zinc and lead fell in London. Tin rose.
Source: Bloomberg

Utilities will need more coal imports as mines close

British utilities will become more reliant on imported coal after two large domestic producers complete mine closures announced.
Power generators including E.ON UK and Scottish Power will have to look to countries such as Colombia, Russia and the United States to make up the shortfall in production from the mines being closed by UK Coal and Scottish Coal.
The closures will result in the loss of more than 1,000 jobs - about a sixth of the workforce in a once-mighty industry.
Demand for coal in British power stations is expected to fall by half to about 28 million tonnes by 2016 because of tougher environmental controls, but dwindling production at home means that imports are likely to increase by 70 percent from current levels, traders said.
UK Coal, which produces coal for about 5 percent of the electricity generated in Britain, confirmed that it would close its Daw Mill mine in Warwickshire with the loss of 540 jobs. Daw Mill had capacity of 1.6 million tonnes a year capacity
A fire that erupted on February 22 is still burning ferociously, the company said, making the loss-making colliery even less financially viable.
Daw Mill is a major supplier to E.ON UK's Ratcliffe power station in central England.
"E.ON buys its coal from many different sources, so the closure of Daw Mill won't have a major impact on its power generation. It is likely to increase imports from all major suppliers to Britain," one analyst said.
Scottish Coal, which supplies about 3.5 million tonnes of coal a year, said that it would close some of its oldest mines, mainly because of weak international prices.
CHEAP IMPORTS
The company, which is part of Scottish Resources Group, blamed competition from cheap imports from the United States, where lower gas prices have helped to displace coal on the international market.
Current coal swaps prices of around $95 a tonne for 2014 delivery are about 30 percent below where they traded two years ago, meaning that producers are grappling with slowing demand in major markets and oversupply.
"Coal still consistently provides between 40 percent and 50 percent of the UK's electricity needs and demand remains high. However, Scottish-mined coal is priced in relation to global pricing trends, which have been at record low levels," Scottish Coal said.
The company did say that some of the production cutbacks would be temporary as it expects coal prices to improve later this year, which would make some new opencast mines commercially viable.
Though the company did not disclose how many miners would lose their jobs, the National Union of Mineworkers (NUM) said that 450 would be cut by the middle of the year.
The NUM said much of Scottish Coal's production is burnt at Longannet, one of Europe's biggest fossil fuel-fired power stations, which is owned by Scottish Power.
The future of Britain's coal mining industry, which in the 1980s employed more than 100,000 people, has looked increasingly bleak as mines and producers struggle to stave off bankruptcy.
Relatively high labour costs, compared with foreign producers, have made deep-shaft mining increasingly unprofitable, underground deposits are dwindling and surface mines are hobbled by expensive fuel and rising prices of rail freight.
Source: Reuters

Richards Bay to get R30bn boost

Richards Bay was to score its share of Transnet’s R300 billion infrastructure spending bonanza when R30bn is pumped into new infrastructure and the upgrading of its port over the next eight years.
A new coal terminal servicing emerging coal mining companies was on the cards and estimated to cost around R15bn.
Preliminary details of the plan were revealed by Transnet executives in the Zululand industrial hub yesterday.
Transnet’s Sudesh Maharaj said two major projects had been earmarked – one included a massive overhaul of the general freight side of the port to expand its capacity and increase efficiency; the other was the new coal terminal. Together the projects would cost between R25bn and R30bn.
“The coal terminal would have an opening capacity of handling 14 million tons of coal for export a year.
“Once final approvals have been received, we expect the investment and construction in both projects will be complete by 2020,” he said.
“The coal terminal is not meant to compete with the existing Richards Bay Coal Terminal (RBCT), which is privately operated and much bigger.
“The new coal facility would have space for expansion to handle 32 million tons of coal annually,” said Maharaj.
RBCT is the single largest coal terminal in the world with a capacity to cater for 91 million tons, but bottlenecks on Transnet’s Freight Rail side have hamstrung the delivery of coal to the terminal from Mpumalanga and Limpopo.
Last year RBCT exported a record 68.3 million tons, mainly to China, India and Europe. The major JSE-listed coal mining giants which own the facility take up its capacity and new emerging coal mining companies struggle to get access.
Maharaj said there were problems with rail infrastructure to deliver coal to the port, but Transnet’s Freight Rail was investing billions in upgrading the line.
There was also a new partnership with Swaziland to establish rail links to transport coal to KZN. Freight Rail said it was committed to spending R15.4bn on upgrading the rail capacity on the line to 81 million tons a year by next year.
“Durban may be getting a new dig-out port, but Richards Bay is also getting a significant share of the action as the premier bulk port,” he said.
“Once marine infrastructure is in place, a private operator may be sought through the company’s procurement processes,” said Maharaj.
Basil Ndlovu, the port engineer for Richards Bay, said Transnet’s spending plans would have a “huge impact” on the local economy.
Source: The Post

China Copper Imports Slump to 20-Month Low on Holidays

Copper imports by China tumbled to the lowest level in 20 months as a week-long holiday slowed customs procedures amid high local inventories.
Inbound shipments of refined metal, alloy and products were 298,102 metric tons last month, the General Administration of Customs said on its website today. That compares with 351,000 tons in January and 484,569 tons a year earlier, according to data compiled by Bloomberg.
Total imports by China fell 15.2 percent in February as exports jumped 21.8 percent, customs data showed. Data in the first two months of the year are distorted by the timing of the Chinese New Year holiday, which fell in January in 2012 and was in February this year, according to economists including Louis Kuijs, chief China economist at Royal Bank of Scotland Plc.
“The holiday is the main factor for the decline,” said Fang Junfeng, an analyst at Shanghai Cifco Futures Co. “I don’t see much change on the spot market so far, no signs of particularly strong demand, nor deterioration.”
Stockpiles tallied by the Shanghai Futures Exchange climbed to 226,201 tons last week, the highest since March last year. Inventories at bonded warehouses were as high as 900,000 tons, Zhong Min, vice general manager of Jinrui Futures Co., a unit of Jiangxi Copper Co., on March 6.
Copper for delivery in three months on the London Metal Exchange rose 0.2 percent to $7,777.5 a ton by 11:45 a.m. Shanghai time. The contract has lost 6.6 percent in the past year.
The metal used in cables and wires may trade between of $8,000 and $8,300 this year because of strong demand as China continues to urbanize, Jiangxi Copper Chairman Li Baomin said on March 5.
Scrap-copper imports were at 300,000 tons in February, compared with 380,000 tons in January, according to today’s customs data. Inbound shipments of unwrought aluminum and products totaled 45,478 tons last month, while exports of unwrought aluminum were 19,302 tons.
Source: Bloomberg

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