Commodities Comment. Four for Friday: coal chaos; quick March PMIs; zinc cuts; China builds new city on rock and coal GLOBAL.

Transcription

1 GLOBAL LME cash price % change US$/tonne day on day Aluminium 1, Copper 5, Lead 2, Nickel 10, Tin 20, Zinc 2, Cobalt 55, Molybdenum 14, Other prices % change day on day Gold (US$/oz) 1, Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Oil WTI USD:EUR exchange rate AUD:USD exchange rate LME/COMEX stocks Tonnes Change Aluminium 1,837,050 0 LME copper 270,550 0 Comex copper 131, Lead 175,800 0 Nickel 376,566 0 Tin 3,475 0 Zinc 368,450 0 Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research, April April 2017 Four for Friday: coal chaos; quick March PMIs; zinc cuts; China builds new city on rock and coal We are altering our Friday to highlight the key research points from the week, in particular showcasing the best charts from the past week s commodities topics. We will also link to commodity-related research produced by Macquarie s wider research team. This week we analysed the coal price spikes due to the Goonyella rail outage, smelter cuts in the zinc market, robust March PMIs, and the potential metals consumption impact from China s announced plan to build a new city district: Xiongan. Latest news China s Dalian Commodity Exchange announced it will cut the minimum margin for coking coal and coke contracts from 15% to 11%, effective from 10 th April. Coking coal price movements in China have clearly lagged the seaborne price over the past week, while Dalian active coking coal contract price only increased by less than 7% while seaborne HCC price has almost doubled, with the TSI premium hard coking coal assessment jumping 34% DoD on Friday to $283/t FOB Australia. The continued drop in domestic steel price and expectation of rising domestic coal supply contributed to the underperformance of China coking coal price in our view, and on Friday we saw another big sell-off in ferrous commodities in the China market, of which iron ore price down 7%, rebar down 5% and coking coal down 3.8%. CISA has released its latest high frequency crude steel output data, covering the middle ten days of March. CISA member mills operated at 643mtpa over this period, up 4.4% on the preceding ten days and reaching the highest level since May YTD CISA output is up 7.8% YoY. With prices now falling however, we expect steel production to follow over the coming months. A round-up of stainless steel output data from China s biggest producers shows growth in all sub-sectors but particular strength in 200-series (1-3% Ni), which was up 43% YoY to 2.03Mt in Q1. The main increases came from new capacities at Tsingshan Guangqing, Beihai Chengde, Baogang Deshang and Fujian Wuhang. 300-series, which is the main nickel-consuming subsector with 7-9% nickel content, was up 8.6% to 2.95 Mt, showing easing from last year s strong growth rates but still a very positive expansion rate. The TEX Report has noted that the recent rebound in manganese prices has seen South32 raise their monthly offers for manganese ore into China for May shipments. Having been $9/mtu CIF at the start of the year, April pricing for benchmark GEMCO 46%Mn lump dropped to $4/mtu, but will now be $5.5/mtu CIF for May. SHFE warehouse stocks were not encouraging: there were gains for most metals in the week to 6 April, data on Friday showed. Copper stocks were up 7.4kt to 314.8kt; aluminium gained 7.6kt to 340kt; lead and nickel added a few hundred tonnes. Only zinc drew this week, by just 842t to 182.2kt, while tin was flat at 2kt. Please refer to page 7 for important disclosures and analyst certification, or on our website

2 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 Macquarie Wealth Management Four for Friday: coal chaos; quick March PMIs; zinc cuts; China s new city Fig 1 Coal: With most of Queensland rail offline, spot coking coal prices are surging Fig 2 PMIs: signal faster manufacturing growth 350 Spot premium hard coking coal prices Source: TSI, Macquarie Research, April 2017 Source: Markit, ISM, Macquarie Research, April 2017 Fig 3 Zinc: smelter cuts piling up in Q Zinc smelter cuts, planned and estimated (kt) Q1 Q2 Q3 Q4 China Korea North America Peru Europe Australia Fig 4 New China city: 80mt of extra steel demand from the development of Xiongan and Tongzhou Estimated total FAI (Bn Rmb) Steel intensity per FAI Xiongan (10 years) Tongzhou (4 years) Aluminium intensity per FAI Copper intensity per FAI Estimated total steel consumption (Mt) Estimated total aluminium consumption (kt) Estimated total copper consumption (kt) Source: Antaike, CRU, Wood Mac, Macquarie Research, April 2017 Source: NBS, Macquarie Research, April 2017 Coal Coal hit the headlines this week as the Goonyella rail outage in Queensland caused by Cyclone Debbie propelled prices to new highs. By Friday premium hard coking coal spot assessments reached $283/t FOB Australia, up 86% WoW. Met coal will always be more exposed to potential supply shocks given its lack of geographical supply diversity vis a vis peers, given ~50% of seaborne tonnage comes from Queensland. However, given actual damage to mines is limited, and assuming full capacity is restored on the rails in time, there should be a period of shipment catch-up after the outage. US met coal is already back in the market plus supply in China looks ample at present (meaning potential coke exports), so we think we are looking more at a price spike than any prolonged price shelf. Meanwhile, although there is less impact on the thermal coal market, given Pacific Basin pricing was already on the rise, a relatively high annual JFY benchmark price is now more likely. Macquarie Solving the met coal problem 7 April

3 PMIs Manufacturing marches on - our our global aggregate PMI rose by 0.1 points to 53.9, its highest since 1Q How this will translate into the official output data is not an exact science, but the past relationship (Fig 2) suggests output growth YoY (3MMA) could accelerate from its current 3.0% to 4.0% in the next few months. This would be a very strong figure by recent standards. There are two caveats: First, two alternative PMI surveys of China and the US showed a weaker figure. Second, as with much other macro data the turnaround in YoY oil price changes, from sharply lower a year ago to higher now, could be biasing the data upwards. Macquarie Quick March: manufacturing PMIs power ahead Zinc We crunched the data on all of the zinc smelter cutbacks this year, both planned and unexpected, that we have heard about in the past few months to assess the impact. Q2 takes the brunt of the cuts, as the recently assembled China Smelter Purchasing Team for zinc met to organise a concerted cutback in response to low TCs, while the Valleyfield smelter strike in Canada which began in February looks no nearer to resolution. Given most of the Q2 cuts were also late-quarter, this points to tightening in the ingot market beginning to emerge. Macquarie Zinc smelter cuts piling up China s brand new city Finally, the Chinese central government announced last weekend plans to build a new city district called Xiongan New Area in order to further divert non-capital related activities and businesses away from Beijing. We look at past major urban developments (Pudong, Shenzhen, Binhai New District) to put some numbers around the potential impact on metals demand (though we note that some of this demand will be replacing that of other areas). Macquarie Xiongan A new city with new metals demand Other relevant Macquarie Research published this week: Energy Briefing - Resilience at high-end of the cost curve: In recent weeks, CNOOC, Sinopec, and PetroChina have all provided 2017 oil production guidance that points to relatively moderate declines from Q4 16 levels. Although our global S&D balances anticipate Chinese oil prod n falling by 240 KBD Q4 17 vs. Q4 16, this assumption could prove aggressive given this guidance. Energy Briefing - Resilience at high-end of the cost curve (Walt Chancellor) Japan machinery: Our global construction machinery demand forecast expects a bottom in FY3/17 and gains of 8% each in FY3/18 and FY3/19, driven by China and Asian emerging markets. Japan machinery - Valuation focus with demand momentum (Kunio Sakaida) China property: We expect March contracted sales to continue to surprise to the upside, mainly due to more new launches, plentiful sellable resources and good market sentiment in cities where there have been no tightening measures. Contracted sales of nine developers increased by 56% YoY in March 2017, 74% YoY in 1Q17, at a run-rate of 23%, largely in line with 2016 performance. China property - Strong March, faster-than-expected market share gain (Wilson Ho) US Steel: We spent time with three steel companies and heard that demand from energy and industrial markets had improved, while automotive markets were resilient. Caution on pricing persists. Concerns about April scrap prices coming down are muting the optimism a bit. MacSteel USA: Ohio Steel - Steel Tour: Better demand in energy & industrial; some price caution persists (Aldo Mazzaferro) 7 April

4 Friday 07 April 2017 Prices Closing price * Closing price * 07-Apr Apr Apr Apr-17 % ch. day 2017 YTD Ave 2016 US$/tonne US /lb US$/tonne US /lb on day US$/tonne US$/tonne LME Cash Aluminium 1, , ,733 1,605 Aluminium Alloy 1, , ,533 1,555 NAASAC 1, , ,720 1,704 Copper 5, , ,435 4,863 Lead 2, , ,125 1,872 Nickel 10, , ,563 9,609 Tin 20, , ,688 18,006 Zinc 2, , ,589 2,095 Cobalt 55,500 2,517 55,750 2, ,855 25,655 Molybdenum 14, , ,215 14,453 LME 3 Month Aluminium 1, , ,738 1,610 Aluminium Alloy 1, , ,544 1,577 NAASAC 1, , ,740 1,725 Copper 5, , ,453 4,867 Lead 2, , ,129 1,878 Nickel 10, , ,614 9,657 Tin 20, , ,669 17,912 Zinc 2, , ,600 2,102 Cobalt 55,500 2,517 55,750 2, ,870 25,758 Molybdenum 15, , ,216 14,472 * LME 2nd ring price hrs London time. Year-to-date averages calculated from official fixes. Gold - LBMA Gold Price (US$/oz) Silver - LBMA Silver Price (US$/oz) Platinum - London 3pm price (US$/oz) Palladium - London 3pm price (US$/oz) Oil WTI - NYMEX latest (US$/bbl) EUR : USD exchange rate - latest AUD : USD exchange rate - latest 1,266 1, ,139 1, Exchange Stocks Change since last report Cancelled End-16 Ch. since (tonnes) 07-Apr Apr-17 Volume Percent warrants stocks end-16 LME Aluminium 1,837,050 1,837, % 831,250 2,202, ,125 Shanghai Aluminium 339, ,326 7, % 0 100, ,239 Total Aluminium 2,177,011 2,169,376 7, % 831,250 2,302, ,886 LME Copper 270, , % 101, ,825-41,275 Comex Copper 131, , % - 80,112 51,797 Shanghai Copper 314, ,376 7, % - 146, ,212 Total Copper 717, ,340 7, % 101, , ,734 LME Zinc 368, , % 183, ,850-59,400 Shanghai Zinc 182, , % - 152,824 29,420 Total Zinc 550, , % 183, ,674-29,980 LME Lead 175, , % 95, ,900-19,100 Shanghai Lead 72,450 72, % - 28,726 43,724 Total Lead 248, , % 95, ,626 24,624 Aluminium Alloy 14,080 14, % ,980 1,100 NASAAC 129, , % ,380 31,940 Nickel 376, , % 100, ,066 4,500 Tin 3,475 3, % 810 3, Source: CME, LBMA, LME, Reuters, SHFE, Macquarie Research 7 April

5 Summary of changes, week ended 07 April LME metal prices (%) Cash 3-Month Aluminium -0.3% 0.0% Aluminium Alloy 0.3% 0.3% NAASAC -2.7% -2.6% Copper -0.3% -0.10% Lead -3.7% -3.8% Nickel 1.6% 1.5% Tin 0.2% 0.30% Zinc -3.2% -2.9% Cobalt 1.8% 1.8% Molybdenum 0.0% 0.0% Other prices (%) Gold 1.7% Silver 1.9% Platinum 2.1% Palladium 0.7% Oil WTI 3.5% EUR : USD exchange rate -0.8% AUD : USD exchange rate -1.6% Exchange stocks tonnes % LME aluminium -49, % Shanghai aluminium 7, % Total aluminium -41, % LME copper -20, % Comex copper 2, % Shanghai copper 7, % Total copper -10, % LME zinc -3, % Shanghai zinc % Total zinc -4, % LME lead -11, % Shanghai lead % Total lead -11, % LME aluminium alloy % LME NAASAC % LME nickel % LME tin % Source: CME, LBMA, LME, Reuters, SHFE, Macquarie Research 7 April

6 Macquarie commodity price forecasts Base Metals Unit CY CY Q1 Q2 Q3 Q4 CY CY CY CY CY CY LT $2017 Copper $/tonne 5,503 4,863 5,900 6,100 5,800 5,600 5,850 5,500 5,750 6,088 6,425 6,425 5,900 Aluminium $/tonne 1,663 1,604 1,820 1,725 1,650 1,850 1,761 1,768 1,575 1,513 1,550 1,550 1,350 Zinc $/tonne 1,932 2,092 2,740 2,850 2,950 3,100 2,910 3,100 2,600 2,325 2,188 2,188 2,300 Nickel $/tonne 11,836 9,599 10,400 11,500 11,500 10,500 10,975 11,625 12,500 13,000 14,000 14,000 15,000 Lead $/tonne 1,786 1,871 2,300 2,400 2,500 2,600 2,450 2,525 2,103 1,945 1,928 1,928 1,950 Tin $/tonne 16,077 17,991 20,000 21,500 20,500 20,200 20,550 21,375 23,000 21,000 20,500 20,500 18,000 Steel and Raw Materials Iron ore - 62% Fe $/t CFR Hard coking coal $/t FOB Steel - World Export HRC $/tonne Energy Crude Oil - Brent $/barrel Crude Oil - WTI $/barrel Henry Hub Gas $/MMBTU Thermal coal - Aus Spot $/t FOB Uranium $/lb Lithium carbonate $/t CFR China 5,190 8,406 11,000 10,500 9,500 8,000 9,750 7,500 7,000 6,750 6,750 6,750 6,000 Precious Metals Gold $/oz 1,160 1,248 1,215 1,175 1,250 1,325 1,241 1,381 1,375 1,400 1,388 1,425 1,250 Silver $/oz Platinum $/oz 1, ,025 1,075 1,008 1,181 1,306 1,325 1,300 1,300 1,400 Palladium $/oz Agriculture MacPI = Potash $/t FOB Urea $/t FOB Ammonia $/t FOB Others Alumina $/t FOB Manganese ore $/mtu CIF Ferrochrome (EU contract) c/lb Source: LME, TSI, CRU, Metal Bulletin, Macquarie Research, April April

7 This publication was disseminated on 07 April 2017 at 17:13 UTC. Macquarie Wealth Management Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2016 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients) Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at Macquarie Group 7 April