Commodities Comment
China switching to ore for chrome units
 In 2011, China’s chrome ore imports increased by 9% YoY to a new record of
9.4mt gross weight. In contrast, China’s ferrochrome imports fell by 1% and at
1.8mt were 17% below their peak in 2009. As the country’s stainless steel
continues to rise, it is choosing to source more of its increasing demand for
chrome units from overseas ore and to produce chrome alloys domestically,
with important implications for producers elsewhere, especially in S. Africa.
Latest news
 Base metal prices closed lower on Friday, zinc was the worst performing
metal on the day, down 2.6%.
 US GDP growth was reported at 2.8% in Q4 2011 at a seasonally adjusted
annualised rate, which was the strongest gain since Q2 2010, but markets
were disappointed by the fact that a significant part of the gain came from
inventory building (1.9%) while fixed investment (0.4%) contributed less than
consensus market expectations had anticipated. Falling government spending
dragged the growth rate down by 0.9%. Inflationary pressures moderated,
which suggests conditions are conducive to policy makers maintaining very
loose monetary conditions. Meanwhile, US consumer confidence is rising.
The UoM index increased to 75.0 in January, from 69.9 in December.
 China’s MNI sentiment survey improved in January with the headline index
increasing to 56, from 52.3 in January. The new orders component of the
index hit a four-month high and the credit component climbed back above
50 for the first time since September. However, the future conditions
component of the index dropped to 56.5, from 60 in December.
 We attended and presented at the Global Steel 2012 Conference in Delhi on
Friday. While India’s obvious growth potential was highlighted, much of the
discussion focused on the challenges facing its steel sector. Unsurprisingly,
the difficulties for non-state owned mills in obtaining iron ore were highlighted
as a major problem and challenges related in investment in new capacity were
flagged in many presentations, including land acquisition, lack of raw material
security and political obstacles. We expect a shortfall in capacity additions
will lead to India reverting to a net importer, particularly of steel long products.
 Brazil’s Vale has been granted an operational licence for its high-grade
Carajas-based N5 Sul iron ore project allowing it to open a new ore body at the
N5 mine. Start up of this expansion has been pushed out to 2016, from 2014.
 The latest SteelBenchmarker price assessment by World Steel Dynamics
has shown a rebound in all ex-China steel prices over the last two weeks.
The European recovery continues, with a $17/t gain in hot rolled coil to $662/t.
Meanwhile, World Export and US HRC prices both gained $14/t to $643/t and
$816/t, respectively. However, Chinese prices showed only minimal movement.
The price arbitrage between the US and the rest of the world remains very
wide and we reiterate our view that this will lessen over the coming months.
In our view, EU prices have another $40-50/t upside, which will help boost cash
margins from levels, broadly speaking, as weak in Q4 2011 as in Q1 2009.
 UC Rusal, the world’s largest primary aluminium producer, has said that it
could reduce output by 6% this year. Based on estimated output of ~4.1mt in
2011, this would work out to ~250,000t. However, we are anticipating a surplus
in the aluminium market of ~900,000t in 2012. As such this is a step in the
right direction but aluminium would remain a market in surplus.