>IRON ORE MARKET (MACQUARIE RESEARCH)

Strong iron ore market to continue as Chinese imports slow

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■ The latest Brazilian iron ore exports for August were extremely high.

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■ Base metal prices were mixed on Friday. Zinc, lead and copper closed higher on the day while nickel closed 3.4% lower, continuing nickel’s trend through the week. Nickel closed 7.8% lower than the previous Friday’s close, while copper was down 3.1% for the week and aluminium fell 2.7%. Lead was the clear outperformer this week, up 9.7%, after supply disruptions in China related to heavy metals poisoning.

■ US employers cut payrolls by 216,000 in August, following a 276,000 drop in July. Construction payrolls were cut by 65,000 and factory payrolls were cut by 63,000, while there were 10,000 retail jobs cut. The unemployment rate rose to 9.7%, the highest rate in 26 years.

■ Around 560 union workers from BHP Billiton’s Chilean copper mine Spence are threatening to strike if the company does not accept a proposed 5.5% pay rise, plus 15 million pesos ($27,125) bonuses for each worker. The union says that the company’s counter offer was insufficient and that “official negotiations” will start on Monday. We are projecting that Spence will produce 180,000t of copper this year. Over the next three to four months, labour contracts that affect up to 2.7mtpa of copper mine supply, 17% of forecast 2009 mine supply, will need to be renegotiated. Spence is the first major copper mine to enter negotiations and may provide a signal for other forthcoming negotiations.

■ Rio Tinto confirmed on Friday that it has suspended iron ore contract negotiations with Chinese customers, although it continues to deliver ore at provisional prices. Iron ore chief executive Sam Walsh said he expected talks to resume, but didn’t know when: “Remember that we have our negotiators detained.”

■ Australian thermal coal exports continued at a rapid pace in July, with 12.8mt shipped at an annualised rate of 151mtpa. Thermal coal exports through July were up 11.3mt (16%) and running at an annualised rate of 140mt. Australia exported a total of 126mt of thermal coal in 2008.

■ Australian metallurgical coal exports in July were above year-ago levels for the first time this year, with 12mt shipped at an annualised rate of 141.5mtpa. This was up 8.9% YoY, though 2.6% down MoM. For the year through July, exports were down 9.1Mt (11.7%), including a 3.9mt (8.3%) fall in hard-coking coal exports and a 5.1mt (17.2%) fall in semisoft/PCI coal exports.

■ Australian met coal exports to China in July totalled 3.7mt, against 3.5mt in June and 3.9mt in May. Australian exports have proven a reasonable one-month lead indicator of Chinese import demand this year and suggest another strong month of import demand, over 4mt.

■ Taiwanese steelmaker China Steel Corporation raised its prices for October/November by 8.6% or $50/t to $590/t for HRC. This compares to a Chinese HRC price of $477/t ex-Vat, or $588/t inc VAT.

To see full report: IRON ORE MARKET