china - commodoties & iron ore

From todays AFR - Looking good for the likely first shipments of Iron Ore late 2005 ....

"China's demand bounces back
Stephen Wyatt | Shanghai
2005/07/28

China's 2.1 per cent revaluation of the yuan has continued to underpin commodity markets. But so too has China's strong apparent consumption, production and imports, as well as its healthy macro-economic numbers.

Compared with a 2 per cent revaluation, continued strong economic growth in China (the major driver of the commodity boom that got under way in late 2001) is much more important.

Jim Lennon, commodity analyst with the Macquarie Bank group, said, "Demand is improving following a weak patch in the second half of 2004 and early 2005 when the government credit controls hit consumption and also led to heavy destocking. Now that destocking has ended, demand is bouncing back."

China's apparent demand for commodities grew strongly in the first half of this year. In the case of nickel, stainless steel, tin, lead and coke, it was growing more vigorously than a year ago. This in part reflects comparison with a period of destocking.

But the increases were still breathtaking, with copper apparent demand up 14 per cent in the first half of 2005 year-on-year, aluminium and zinc up almost 10per cent, lead up 30 per cent, nickel 56 per cent, crude steel 12 per cent, stainless steel 38 per cent, coal 12 per cent and coke 33 per cent.

This reflects strong Chinese production and strong net imports of most commodities. Chinese copper production over the first half rose by 21 per cent year-on-year, aluminium production by 16 per cent, lead by 24 per cent and steel by28 per cent.

China's net imports of raw materials also continued to rise. Imports of copper concentrates rose by 48 per cent over the first half, year-on-year, alumina by 30 per cent and iron ore by 34 per cent.

No signs of a slowdown here.

And critically for Australia's exports of iron ore and coking coal, Chinese steel prices, which have been in free fall for the past three months, are showing early signs of stabilising.

Steel rebar and hot-rolled coil prices showed slight price gains, although cold-rolled coil prices continued to decline.

Urban fixed asset investment is one of the key drivers of steel use in China. It is outpacing last year's rate and growth accelerated marginally in June, reaching 28.8 per cent year-on-year from 28.2 per cent in May.

Strong Chinese steel production has also seen a rise in iron-ore prices, Australia's second largest commodity export after coal.

Indian-origin iron-ore fines into China were offered this week at $US63 to $US66 per tonne delivered to China, up from $US57 to $US63 aweek ago. "Steel makers have come back to the iron-ore spot market after holding off in the past few weeks, as their stocks are running low," an iron ore importer in eastern China's Shandong province told Peter Richardson, commodity analyst withDeutsche Bank.

" I believe Indian iron-ore traders will raise their offer prices next week in response to the yuan revaluation, and the mainstream transaction price will hit $US63 to $US65,"

the Shandong trader said.

The bulk of Australian iron-ore sales are on a fixed-price basis of $US40 a tonne FOB or about $US50delivered to China. Significantly, higher spot prices signal that 2006-07 iron-ore contract prices may remain at their high levels."