Performance risk for copper mine supply in 2012

Performance risk for copper mine supply in 2012

 We are forecasting 2012 to be the strongest year of growth in copper mine
supply for the past eight years. In today’s Commodities Comment, we look at
which mines are the largest contributors to the output growth and the risks to
our expectations of a 4% YoY increase in copper contained mine production.

Latest news

 Most LME metals prices ended trading on Tuesday almost unchanged, with
the exception of nickel, up by 1.6%, and zinc up by 3.2% to close above
$2,100/t cash. Short-term nickel pricing prospects have been better, in our
view, than consensus expectations, and we have not been surprised to see
levels move up. Zinc, in contrast, now looks well priced in the context of
current market fundamentals.

 The flash PMI data were better than expected in January, with the
manufacturing PMI rising to 50 from 47.1 in December. Most of the
improvement came from Germany, which rose to 50.9 from 48.4, although the
remainder of the Euro zone saw the rate of decline in output slow.

 LME copper stocks were drawn down by a further 3,525t on Monday. At the
same time there was a net increase in cancelled tonnage of 3,775t (mainly out
of New Orleans) and open warrants are now at the lowest level seen since
mid-2009. In aluminium, there was a small net stock withdrawal but total
aluminium inventory in LME warehouses remains above the record 5mt
threshold that was breached recently. There was another significant increase
in aluminium stock cancellations, this time 86,425t out of Johor in Malaysia.
Total cancellations now stand at 975,100t, mainly out of Vlissingen and
Detroit, where cancelled tonnage will take many months to clear at typical
LME out rates. We think these cancellations are driven by primarily by tactical
considerations in the positioning of metal stocks rather than any significant
upturn in industrial demand.

 The final breakdown of Chinese iron ore imports for 2011 highlights the need
for additional volumes of ore from outside of traditional sources. Total imports
rose 10.9% YoY to 686mt, with imports from Australia up 11.8% YoY to 297mt
and Brazil up 9.1% to 143mt. Imports from India dropped 24.3% to 73mt,
while those from South Africa rose 22.3% to 36mt. However, the big moves
were in non-big 4 supply, which rose 58.6% YoY, with substantial growth from
Mongolia, Russia, Canada and the US. In total, nine countries supplied over
10mt of ore to China in the year, while 23 provided in excess of 1mt and 37 in
excess of 100kt.

 The latest forecast from the Australian Bureau of Metrology shows a
considerable volume of rain is set to fall on Queensland over the coming
week. Much of this is set to fall on the ports, with the Bowen Basin set to
avoid a direct hit. However, after a strong January period, we expect to see
slightly lower coal export volumes from Queensland over the next two weeks.