It being August, it was a slow week for news.  Probably the most interesting points came from the fertilizer sector, where, on the one hand, Don Carson of UBS issued some bearish comments and downgraded the fertilizer stocks to hold, and on the more bullish end of things, Merrill Lynch provided a comment that potash imports into Brazil would be much higher in the second half, that distributors in North America were once again filling potash inventories, and that inventories of both DAP and potash were declining.

Coking Coal
  • Imports of coal into China seem to be moderating as previously shutteredmines reopen. Chinese coal mines shut a number of high-cost operations following the bottoming of prices earlier in the summer and as thegovernment cracked down on illegal and dangerous operations, prompting a massive 148% y/y import surge in the first seven months of 2009. - BMO Aug 24
  • However, imports seem to be coming toan end, with July shipments dropping 13.6% m/m to 13.9Mt. Lower importsmay become the order of the day if the previously closed mines reopen. Some 10,000 small-scale producers were ordered to halt operations at the beginningof the year, but many have now restarted their shovels. According to HuadianPower International (one of China?s largest independent power producerswith 23GW of installed capacity) forecasts, Shangxi province H2/09 outputwill reach 400Mt, a 60% increase over the first half of the year. This regionwould thereby account for ~10% of total global hard coal mining. - BMO Aug 24
  • This week China, while still possessing much enthusiasm for imports, has witnessed Australia coking coal running tight to import, for more coal has flowed to Japan and Korea than before. The other reasons are, Australia coal is passed over traders and to large scale steel mills directly and that transporting capacities at ports are curbed and export quotas are implemented on Australia's coal imports. This week Australia primary coking coal remains at USD 165 per tonne at each port in China and the transaction price stays at CNY 1,240 per tonne at Jingtang port in China. - Steel Guru Aug 25
  • Macarthur expected to sell 80-90 per cent of its PCI coal this financial year on a contract basis to previous non-Chinese customers...."For the first time in many months we're now seeing some positive signs return to the market across all regions," chief executive Nicole Hollows said...Macarthur intends to ramp up production at its Moorvale and Coppabella mines to pre-financial-crisis levels and gave full-year production guidance of 4.6 million tonnes, equal to last year's production. - The Australian Aug 27

Natural Gas
  • North American natural gas prices continued to decline, staying below the US$3/Mcf level. The downward pressure on natural gas prices was primarily attributable to record high storage levels and sagging industrial demand. This week’s injection of 54 Bcf was in line with expectations of 52 Bcf; however, the U.S. working gas in storage currently stands at 3.258 Tcf, the level that is expected to be reached by November. As the U.S. gas inventory level continues to climb further into a record high, storage levels are on track to exit at 3.91 Tcf, assuming injections match the five-year average for the remainder of the injection season. - BMO Aug 29

  • A burgeoning glut in U.S. natural gas supplies is moving into uncharted territory. By fall, the U.S. might find out just how much it can--and can't--store, which could depress already low prices of $3 per 1,000 cubic feet.

    The brim is believed to be just under 4 trillion cubic feet in the Lower 48 states, but, "We don't really know for sure because we have never been here before," says Carl Kirst, an energy analyst at BMO Capital Markets... On Tuesday, Niska, which says it's the largest independent natural gas storage company in North America, announced that it finished a 10.5 billion cubic foot expansion. Canada's storage capacity is also nearly full and analysts expect some of its natural gas to flood into the U.S. market. - Forbes Aug 29


Uranium
  • BMO Research has been speaking to a number of uranium market participants and it is becoming increasing clear that the uranium market is in transition. The most important takeaway is that the spot uranium price is becoming increasing less representative of the real price that mining companies are transacting at outside of long-term contracts. The real price for mining companies is further out the curve and at a premium to the current spot price (although future prices are obviously still derived from the current spot price). - BMO Aug 29
  • The spot price is being depressed by market entities with weak balance sheets. This is better explained using a crude example of a representative transaction: An entity has an agreement to receive uranium in two months at a price related to the spot price at delivery minus a percentage for commission. The entity starts offering the material into the market, as it has no interest in being left with it on its balance sheets and it has a decent percentage locked in by the nature of the transaction. - BMO Aug 29

Steel
  • It is reported that Japan's auto and shipbuilding industries are showing signs of increasing steel requirements, with the total steel demand for autos rising 23.6%, reaching 613,000 tonnes and for ship building, climbing 11.3% and reaching 468,000 tonnes. However, demand for the construction industry continued to exhibit very weak demand on steel needs in June. - Steel Guru Aug 24
  • Many steel-related commodities have suffered from a significant pullback in China’s spot market. Rebar prices, for example, suffered from a straight five-day decline last weekUnder normal circumstances, a severe pullback in Chinese steel prices should not be ignored. Over the past few years until this year, about 20% of China’s steel demand had been from infrastructure projects, 40% of China’s steel demand had been driven by property developments, and 30% had been due to industrial use. This is why we deem steel pricing and inventory levels to be the best concurrent indicators of China’s overall construction activities. Unfortunately, due to very strong output growth over the past three months, the steel supply in the market has run ahead of demand, and inventory has been on the rise. - Scotia Aug 24
  • AISI data shows improving trend. The latest weekly domestic steel statistics released by the American Iron & Steel Institute (AISI) indicated that both production and
    capacity utilization increased for the ninth consecutive week. Specifically, AISI reported that US steel production was 1.304M tons for the week ended August 22, up 1.5% from the prior week. Capacity utilization reportedly was 54.7%, up from 53.9% in the prior week...Production trends continue to move in the right direction. Although US steel production remains nearly 40% below year-ago levels, production trends continue to move in the right direction, in our view. In fact, US steel production and overall industry capacity utilization now stand at their highest levels of the year. - Canaccord Aug 26
  • Steel service center inventories have declined sharply. As we noted last week, US steel service center inventories have been dropping steadily since August 2008 amid weak demand trends. MSCI data indicate that US steel service centers’ inventories totaled 5.72M tons in July, down 4.4% from 5.98M tons in June and -56% on a y/y basis. As of July, service centers held a paltry 2.3 months of inventory, the lowest level in years. While distributor inventories continue to decline, MSCI data also indicate that service center shipments increased in July to 2.5M tons, up from 2.46M tons in June. That marked the third consecutive month of rising shipments. - Canaccord Aug 26

Copper
  • "Month-on-month we don't expect any rebound in refined imports for the remainder of this year due to prices, and rising scrap supplies should act as a curb too," Liang Zhigang, head of research at Minmetals StarFutures Co. said from Shenzhen. China's scrap copper imports were 448,258 tons in July, customs said. That compares with 278,922 tons in June and is 16 percent less than a year ago, according to Bloomberg data. "Buying interest for scrap has improved a lot as the climb in refined prices enlarged the scrap discount," Liang said. - UBS Aug 25
  • Japan's copper wire and cable shipments climbed in July to the highest level in eight months as global demand increased, according to the Japanese Electric Wire and Cable Makers' Association. Shipments, which include exports and domestic business, were 58,200 metric tons last month, up 8.9 percent from June and gained 30 percent than May...July's shipments were down 21 percent from 73,244 tons a year earlier, it said. - UBS Aug 25
  • “Observers are correct when they point to a massive disconnect between commodity prices and economic fundamentals. “What the various LME [London Metal Exchange] prices and other indicators reflect is that markets could get a move on in the second half of the year if we get some form of restocking in economies of the Western world. “Any demand recovery will quickly test the market’s ability to supply the materials and the two obvious ones here are copper and nickel. - JP Morgan Aug 25
  • Chilean miner Antofagasta PLC expects rising European demand for copper to compensate for a likely slowdown in Chinese consumption of the metal, Gonzalo Sanchez, vice president for sales and marketing, said Wednesday. "We expect a more or less balanced market by the end of the year," Sanchez said during a presentation. "The market, we expect it will remain tight." Sanchez added that the miner hasn't yet seen a decrease in Chinese copper consumption and on current trends the country's demand will reach 7 million metric tons for the year - a "huge" increase of 2 million tons. "We do expect a slowdown in Chinese activity in the coming months," Sanchez said. - Dow Jones Aug 27
  • Chile, will increase output by 6 percent or 400,000 tonnes in 2010 from this year as the global economy picks up, a leading mining trade group said late on Wednesday. The National Mining Society expects the South American country's copper output at 5.4 million tonnes in 2009, slightly above the 5.3 million extracted last year. - Reuters Aug 28

Lead
  • Henan, China's top refined lead producing province, has shut down up to 240,000 tonnes of annual lead smelting capacity in recent days after lead poisoning was reported to have affected hundreds of children in Shaanxi province, smelter officials said on Monday. "Three plants were shut on Sunday, with a monthly output 15,000-20,000 tonnes," a senior executive at a large lead smelter in Henan told Reuters. A sales manager at a medium-size lead smelter in Henan said the provincial government had asked lead smelters to shut down capacity that did not meet national environmental standards. "About a third of the province's lead smelting capacity could be closed eventually," he said...lead is highly toxic and it is becoming increasingly difficult to mine and smelt the metal without raising the ire of governments and environmentalists. Now Chinese lead mining and smelting has been hit by this global trend and this could tighten the lead market up considerably in coming months and years. - UBS Aug 25

Gold
  • Ongoing deficiencies in the Indian monsoon continue to concern us about gold demand in this important market this year. We spent some time looking at our sales of gold to India this year and found that they have been down 45% compared to sales in 2007. We attribute most of this short-fall to higher gold prices, but the prospects for a weak monsoon may also be playing a role, even if the Indian economy is far less dependent on the rural sector than it was a decade ago. - UBS Aug 26
  • The decline in gold sales by central banks reflects renewed respect for the precious metal as a reserve asset, analysts said. Some central banks, especially those in Asia, are now said to be expanding their reserves rather than making sales. The WGC said in its gold demand trends report last week that central banks had turned net buyers of gold globally, making net purchases of 14 tonnes in the second quarter against sales of 69 tonnes a year before. - UBS Aug 26
  • Russian gold output jumped 21 percent in the first seven months of the year due to the launch of several large projects in the country's Far East, including Kinross Gold's Kupol mine in the remote Chukotka region. Russia, the world's fifth-largest gold miner, produced 101.77 tonnes of the precious metal between January and July, the Russian Gold Industrialists' Union said on Wednesday. In the same period of 2008, it produced 84.13 tonnes. Russia produced about 8 percent of the world's gold last year and plans to significantly increase this share by developing its reserves those are second only to South Africa's. - Reuters Aug 27
  • Gold imports by India, the world's biggest buyer, will probably slump 37 percent this year as high prices and the worst drought in seven years pares rural incomes, cooling jewelry demand, a traders' group said. Purchases may drop to 250 metric tons from 396 tons in 2008, Harmesh Arora, vice president of the Bombay Bullion Association Ltd., said in a telephone interview...Imports this month may have slumped to 14 tons from 98 tons in the year-ago month, he said. ``Fears of drought and fall in agricultural incomes are making people cautious and avoid jewelry spending,'' Arora said. ``Unless the price falls substantially, retail buyers are likely to continue with very essential purchases.'' Imports slumped 56 percent to 71.6 tons in the seven months ended July 31, according to the association." - Bloomberg July 29

Potash
  • Local sources indicate that relevant industry associations, lead corporate negotiators, and government agencies are considering the resumption of potash negotiations with overseas suppliers after the Indian deal. Local industry observers believe that the Indian deal is close to “realistic” price levels that China should take as the starting point, from which China could negotiate a further discount...The local potash market has remained weak after the India deal. Although the Salt Lake Group, China’s largest producer, insisted on list prices of over RMB3,000/tonne, actual transaction prices were reportedly in the range of RMB2,800-RMB2,900/tonne (US$410-US$425/tonne). - Scotia Aug 24
  • ICL says that third-quarter sales so far are better than last quarter's, even though they are below sales in the parallel...Fertilizer sales to Brazil are picking up, thanks to the growth of soybean crops. Lower energy prices in that country reduced transportation expenses, and the depreciation of the real against the dollar put more money from exports into farmers' pockets.- Haaretz.com Aug 25
  • The U.S. government expects a record soybean crop this year and the second-biggest corn crop ever — despite a 30-35 percent decline in shipments of potash, a key fertilizer, according to UBS analyst Don Carson..."This makes us less confident of a complete recovery in potash consumption," he said in a research note. Potash prices have also stabilized at lower levels after India made a major purchase at $460/tonne in early July and Brazil spot sales were $525/tonne. At the time of the India buy, spot prices were between $700 and $750 per tonne. Carson doesn't expect prices to head back up soon. - AP Aug 28
  • Brazilian Fertilizer Association saying Brazil imported 2.5mt of fertilizers in Jan-June (-69% vs. 2008). But total imports in 2009 could be 10-11mt, meaning nearly 8mt of imports from Jul-Dec (+19yoy). Current line up of ships into Brazil at 2.7mt for 30 days, thinks that roughly 50% is potash...Expect pressure on the fertilizers on the heals of this, but we think the longer term story remains in tact: 1) phosphate inventories are below 2007/2008 levels, 2) potash inventories have started to come down, 3) AGU and MOS have said distributors are buying again, 4) late crop means that some of the corn will be damaged from frost, which will bring yield back down, 5) fertilizers have underperformed Materials. All said, it's a volatile bunch, and we could have more headwinds ahead for now. - Merrill Lynch Aug 29

Agriculture
  • The amount of farmland is decreasing. In 1950, there were 0.5 hectares of arable land per person. Today, the number is closer to .25 hectares. Fresh water is also under pressure. The UN estimates that groundwater is being used at a rate 4 per cent higher than it can be replenished. Grain reserves are low. In 2000, the world had enough stockpiled to last 111 days. Today, there is enough for about 54 days. - Globe and Mail Aug 27

China Economy
  • China is planning to tighten capital requirements for banks. There are media reports that China’s banking regulator, the China Banking Regulatory Commission (CBRC), may tighten banks’ capital rules by excluding the subordinated bonds they sell to other banks from their capital base. The CBRC has issued a document to lenders seeking feedback on the move. Although subordinated bonds are typically included as part of banks’ Tier 2 capital in China, and not Tier 1 core capital, their impact should not be ignored. Chinese banks have issued about RMB200 billion in subordinated bonds so far this year, more than double the issuance last year, as they try to meet capital adequacy ratio requirements despite massive lending. Some bankers estimate banks’ subordinated bonds mutually held by other banks have reached more than 50% of the total issuance in China. - Scotia Aug 24
  • Second, Chinese commercial banks are clearly trying to restrict loan growth. Market speculation now puts China’s August loan additions at about RMB500 billion, slightly higher than July’s RMB355 billion, but still much lower than June’s RMB1.53 trillion. Last week, Bank of China became the latest major Chinese bank to put a brake on lending, sending an internal document to its branches advising them to scale back their lending for the rest of the year. The news from Bank of China follows a report in late July from Chinese financial magazine Caijing that both Industrial & Commercial Bank of China and China Construction Bank have put a ceiling on new lending for the year. The bi-monthly Caijing reported that with the new ceilings in place, ICBC has already lent 83% of its full-year new lending total, while CCB has lent 79%. - Scotia Aug 24

India Economy
  • Although rainfall improved in the first half of August, the annual Indian monsoon continues to register a significant nationwide deficiency of 26% below 'normal'. The worst-hit regions remain the North East and North West, which contain the important rice-growing states of West Bengal, Uttar Pradesh; Southern State Andhra Pradesh is also seriously deficient. The area under cultivation is down 7% y/y, manly dragged down by lower rice planting (down 19% y/y). - UBS Aug 26

US Economy
  • The S&P/Case-Shiller index for home prices in 20 major cities in the three months ended June 30 was up 1.4% from its level in the three months ended May 31. It was the first time the index rose two months in a row since mid-2006. Prices gained in 18 of 20 markets, but were still down 31% from their July 2006 peak. - WSJ Aug 26

  • The hint of improvement in housing and the broader economy was underscored in a separate report Tuesday showing consumer attitudes improved in August after two months of decline. The Conference Board's consumer-confidence index rose to a level of 54.1 in August, just shy of the 54.8 level reached in May...One component of the index, consumer expectations of where the economy will be in six months, rose to 75.8, its highest since the recession began in December 2007. - WSJ Aug 26

  • Demand for temporary and contract employees increased "markedly" this month, according to the American Staffing Association, a potential augur of improvement in the overall jobs picture...The Association's Staffing Index rose to 75 in the two weeks ending Aug. 16, from 71 in early July, outpacing gains in the same period last year. The index, which measures demand for temporary workers among ASA member firms on a 100-point scale, has been hovering between 71 and 73 since hitting an all-time low of 69 at the end of December. The ASA says its members generate 85% of sales in the U.S. temporary-staffing industry - WSJ Aug 26

  • Ford increased its third-quarter production to 495,000 new vehicles driven primarily by the demand for the Ford Focus and Escape. The company will build 6,000 more Focus vehicles during the quarter through overtime and Saturday shifts. It is the third time the auto maker has tweaked its output, which will now be 18% higher than the same period a year earlier. Ford also said it will now build 570,000 vehicles in the fourth quarter, 33% higher than year-earlier levels and 15% above planned third-quarter output. - Dow Jones Aug 28