Commodities Comment:January review,multi-year lows for some commodity prices
Average prices of most base metals and bulk commodities were sharply lowerin January month-on-month and in some cases reached depths not seensince the global financial crisis. Precious metals performed better, though byhistorical standards they were hardly strong.
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Preliminary shipping data highlights the lack of disruption to Australian ironore shipments during January. Based on dead weight throughput, Australianiron ore shipments over the first 5 weeks of the year rose by ~25% whencompared with 2014 levels. Throughput at Rio’s ports rose 21% YoY, BHP37% and Fortescue 23%. This highlights that the lack of usual cyclonesimpacting export volumes is set to result in above-expectation shipmentsduring Q1 as a whole, which has been one among many contributors to theiron ore spot price weakness seen this month. Meanwhile, shipments fromBrazilian ports were up just 2% YoY in the traditional wet season.
Switzerland, the main centre for gold refining and trade, released on Tuesdayits December and full-year 2014 trade data in gold. In December gold exportswere 140t and imports were reported as 192t, which as it includes things likedoré that are not solid gold we estimate was equivalent to 134t of gold. Theseflows were down from November but about average for the year. For the fullyear, exports were 1,746t and imports (we estimate) about 1,740t. The maindestination of exports was India, at 471t, followed by Hong Kong, 377t, andChina, 213t (reflecting a greater tendency for gold to go to China directly,rather than Hong Kong), and Singapore, 134t. Imports are more varied, with alot coming from mining countries to be refined, though the main sourceremains the UK, at 652t, though that is down from nearly 1,700t in 2013.
The world’s largest coal miner, Coal India (CIL), produced 46.6mt of coal inJanuary, down 1.6% YoY. Nevertheless, in the fiscal year that started 1 April(FY15), CIL’s production is still up 6% YoY, which is a marked improvementon production growth of just 1.8% CAGR from FY10-FY14. The company hasvery ambitious plans to expand domestic production towards 1bn t by 2020,which we think is unrealistic considering that it equates production growth of14% CAGR and requires the completion of 3 key rail lines, 51 feeder lines andland acquisition. If, however, total Indian domestic supply growth ran at 7.5%CAGR, we estimate this would keep thermal coal imports flat going forward.
Zambia’s new President Edgar Lungu said on Tuesday that he has told hisgovernment to resolve tax disputes with various mining companies and thatthe country’s Finance Minister is to sit down with miners this week to discussissues, including VAT rebates and the new mine tax hike. The country is theworld’s 7th largest copper miner, and provided these issues can be overcome,it is set to provide ~17% of this year’s mine output growth of ~850kt (afterprobable disruption allowances), through ramp-up at several operations andthe contribution of First Quantum Minerals’ Sentinel copper project, dueonstream by 2H. With emerging corporate supply outlook guidance causingus to see an ever more balanced copper market in 2015, the balance now hasa lower tolerance for further major outages and any sustained mineshutdowns in Zambia are likely to push the refined market into deficit territory.
