Commodities Comment-JFY thermal coal contract: producers aimed for the moon and hit a star

The Japanese Fiscal Year (JFY) thermal coal contract, estimated to back60mtpa of imports and a key earnings driver for Australian producers, hasbeen settled at US$67.80/t FOB Australia. This represents a YoY decline ofUS$14/t and Japanese utilities might feel satisfied that they have betteredrecent expectations, which were for a settlement of US$69-70/t.

    However, we think the main interpretation of this deal should be that it is acoup for Australian producers. In Australian dollar terms, the settlement ismarginally up YoY and combined with lower cash costs, represents marginimprovement in a fundamentally very weak market. The settlement alsocomes at a larger-than-usual premium to both the spot and forwardNewcastle prices.

    Latest news.

    According to Antaike, Chinese nickel pig iron (NPI) production was down34%YoY to 30.1kt (nickel content) in March. Sequentially however, the NPIsupply recovered by 8.6%MoM in the month in spite of the shutdown inShandong region due to environmental inspection. Maintaining hopes forhigher nickel prices, other high-grade NPI plants ramped up production andas a result, the high-grade NPI production recovered by 10%MoM to 24.8kt inMarch. Looking ahead, the environmental-led disruptions in Shandong arereported to have been settled as RKEF plants resumed production on 3rd April(only low-grade NPI plants (blast furnace) are still shut at this moment). Thoserestarted RKEF plants could add potentially 4.6ktpm NPI supply in the future.

    Despite the current loss-making margin, the expectation for a higher nickelprice serves as the key rationale for Chinese NPI plants to continue or resumeproduction. This mentality could entail more pressure from the NPI supplyside in the short term, but at current prices continued growth in NPI supplyseems unsustainable.

    CFTC Commitment of Traders’ data for the precious metals in the weekending 31 March showed speculators returning to gold, silver and platinumbut continuing to shun palladium. The non-commercial net long, a traditionalmeasure of speculative activity rose 2.8 Moz in gold to 8.1 Moz, while in silverthe same measure gained 53.1 Moz to 249.3 Moz. Platinum speculatorsadded a modest 103 koz to 1.3 Moz. The most dramatic move came inpalladium, where speculators cut their positions by 346 koz, the largestweekly reduction since 23 September 2014. The move was entirely down toan increase in short positions, up 353koz.

    Chile’s Cochilco announced a downward revision to FY national copperoutput estimates from 6.0Mt to 5.94Mt, as a result of recent extreme weatherconditions and some slower project ramp-ups. The figure still represents again on 2014’s 5.78Mt. In context, global copper mine output is seen at19.7Mt in 2015 (before disruption) of which Chile accounts for ~30%. Chile’scentral bank also announced today that the country’s March copper exportrevenue amounted to $2.86bn, up 15% from $2.48bn in CNY-impactedFebruary but down 30% on the figure from March 2014, as prices havetumbled 15% since then and weak collateral financing activity compared witha year ago has hit export demand.