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Wednesday, 07 July 10
MACQUARIE SEES CHINA COMMODITIES PRICE FALLS AND CUTBACKS AHEAD - MINEWEB


MineWeb reported that, The research arm of Australia's Macquarie Bank - one of the most reliable of China watchers - in its latest briefing on Chinese commodities, cautions that although growth is continuing year on year for most commodities, the drop in prices seen in June could cause cutbacks ahead - a trend already apparent in the country's vast steel industry.  Aluminium output cutbacks are also seen as highly likely as current pricing is currently well below the marginal cost of production.

"Production and trade data for May", notes Macquarie, "showed a continuation of the recent trend of slowing net imports as domestic production returns. Apparent consumption ticked up in May for several commodities, although production cuts are expected for some in the coming months, and we are likely to see apparent consumption slow in line with broader macro economic indicators."

“While Chinese commodity consumption has been growing so far this year there are signs that there could be slippage ahead - already being seen in the vast steel sector.”
 

"Massive year-on-year growth in output of most commodities reflects a reopening of domestic capacity that was forced to shut down due to low prices at the start of 2009. While production has been strong over the first five months of 2010, the sharp drop in prices over June could lead to production of several commodities being cut back."

As an example of the change in market patterns in China, Macquarie has seen imports of refined metal falling over the first half of the year as Chinese domestic refining facilities have re-opened, but imports of bulk commodities like iron ore, steel scrap and in particular, coal (up 189% y-o-y), but on the latest monthly figures these now appear to be on the decline with coal imports, for example, falling from 13 million tonnes in March to 9.5 million tonnes in May.

Overall though, the May figures from China showed that domestic production has kept consumption high for most commodities. "Aluminium, copper, zinc, lead and coal all saw apparent consumption tick up in May over April" reckons Macquarie,  "However, given that we expect production cuts in aluminium, lead and zinc in the near term, this trend could be reversed for some."
Source: Mineweb



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