China Commodities Weekly - Surging nickel ore imports

Shanghai copper prices moved generally in line with LME prices last week, although in recent weeks, there has been a noticeable narrowing of the differential between Shanghai and LME prices. This fits in with reports from China that some consumers are looking at the pull-back in copper prices as a buying opportunity. SHFE copper prices ended the week at Rmb64,650/t ($8,543/t), up by Rmb3,290/t ($464/t) from a week earlier.

Recent exports of refined metal from China appear to have cleared out virtually all of the excess copper from bonded warehouses, and it is significant that SHFE copper warehouse stocks fell sharply last week, down by 16,569t to 73,241t. We understand there will be another large drawdown this week.

SHFE aluminium prices also tracked LME prices last week, but over the past month, SHFE prices have far outperformed LME prices. Given the strength of aluminium production, price differentials are certainly not showing that China has a large exportable surplus. In fact, the price differential is getting close ($300/t) to the levels at which importing could start to look viable! Shanghai aluminium ended the week at $19,520/t ($2,579/t), Rmb380/t ($59/t) higher than a week earlier.

Chinese imports of nickel ore surged in July to 2.278m tonnes, easily the highest month ever (the previous high was May's 1.642mt). Imports of ore from the Philippines surged to 1.391mt in July. Reports from China suggest there is a huge tonnage (reports last week indicating as much as 4.97 million tonnes!) of nickel ore sitting in Chinese ports.

Chinese net exports of refined zinc remained extremely low at just 7,705t in July, similar to the previous month. Including zinc alloys, China was actually a net importer of zinc for the fourth consecutive month.

According to local media, the Chairman of Capital Steel, Mr. Zhu Jimin, recently claimed that the iron ore prices in 2008 should be maintained at the level of 2007, representing the agreed opinions of the country's other major steel makers. Unfortunately the market does not appear to agree, with spot prices again moving higher - Indian 63.5% iron ore reached $126/t cif, $6/t higher from last week, while fob prices were up by $10/t to $98/t. Sellers will undoubtedly be pushing for a substantial price increase in the negotiations which will start later this year.

Our industry contacts confirm that recently the iron ore stock of steel mills is running extremely low, which, coupled with winter reserve procurement for steel mills in northern China, is increasing the tightness in iron ore supply.