Macquarie Commodities Research has reviewed the 2009 Chinese commodity production and trade data. Comparing the strength in Chinese statistics with the situation in developed countries emphasises that China’s demand saved the commodity world during the year. Key highlights from the production data were:
- A major recovery of aluminium production following large big price related cuts early in the year
- The quick acceleration of nickel output, especially in the second half of the year, in line with strengthening LME metal prices
- Solid coal production growth despite the mine consolidation in Shanxi
- Modest growth of lead output despite the closure of production after blood poisoning incidents in Henan and Shaanxi Provinces.
Chinese reported production of selected commodities
Production 2009 (t) 2008 (t) Year-on-year change(%)
Aluminium 12,846,000 13,185,000 -2.6
Copper 4,110,000 3,792,000 8.4
Nickel 263,000 216,000 21.8
Zinc 4,357,000 3,915,000 11.3
Lead 3,708,000 3,206,000 15.6
Tin 134,500 129,100 4.2
Alumina 23,792,000 22,638,000 5.1
Copper ore 961,000 919,000 4.7
Zinc ore 3,092,000 3,138,000 -1.5
Lead ore 1,360,000 1,145,000 18.8
Crude steel 566,000,000 500,000,000 13.1
Iron ore 879,000,000 799,000,000 10.0
Coke 346,000,000 313,000,000 10.6
Coal 2,984,000,000 2,586,000,000 15.4
Source: CNI-A, NBS, Macquarie Research, January 2010
Chinese aluminium production fell significantly since May 2009, following the strength in price on the Shanghai Futures Exchange (SHFE) from the middle of 2009. “According to the reported statistics, Chinese refined aluminium annualised production increased to 16 Mt at the end of 2009 from <11 Mt at the start of the year.
“Domestic demand from strong activity in the construction and transport sectors, along with purchases from the government, underpinned SHFE aluminium prices moving above smelters’ cash costs of production. Consequently, most of the price-related production cuts in early 2009 were reversed in the second half of the year, leading to a sharp bounce in production. Nonetheless, for 2009 as a whole, Chinese reported aluminium production was still down 2.6% YoY at 12.8 Mt.
“Nickel output rose 22% YoY to 263,000 t in 2009, with majority of the output coming from nickel pig iron (NPI). Stronger demand from the stainless steel industry and a sharp recovery of global nickel prices successfully brought the Chinese production of NPI back to life. We estimate that, for the year 2009, total production of nickel pig iron was around 100,000 t, with more than 60% of the production coming from the second half of the year.
“Chinese reported raw coal production went up by 15% YoY to 2,980 Mt in 2009 compared with 2,580 Mt of output in 2008. This is despite government announced closure of 1,100 of illegal small coal mines in 2009. Although we do not yet have the breakdown of production by province, we believe that the majority of the production increase in 2009 came from Inner Mongolia, with production up 32% YoY from January to November 2009.
“Refined lead production was surprisingly strong in 2009, rising 15.6% YoY at 3.7 Mt. This was despite the shutdown of some smelters in Henan and Shaanxi province due to socio-environmental concerns. We believe that this stronger output in 2009 reflects stronger demand from the domestic auto mobile industry and the problem of undersupply of lead concentrate relative to the smelting and refining capacity in China. Excess raw material available from the closed capacity was absorbed by the spare smelting capacity with much cleaner and advanced technology elsewhere in the country.
“The copper data show a remarkable increase in net imports in 2009 at 3.14 Mt, up 130% YoY. Restocking by the Chinese government and traders following the price collapse at the early of 2009, as well as stronger demand from domestic market, drove this increase following the critical shortage of scrap metal last year. Chinese imports of copper scrap were down 28% YoY at 3.99 Mt only in 2009, which is the lowest in imports since 2004. We believe that Chinese net imports of copper metal will be down to 2.5-2.6 Mt in 2010 due to greater availability of scrap, higher copper prices and gradual recovery of global industrial activities.
“China shifted from an exporter of unwrought aluminium to a net importer in 2009. Net imports hit 1.4 Mt in 2009 compared with net exports of 585,000 t in 2008, reflecting a quick stop in production in early 2009. Major restocking on the back of lower prices and sharp cuts in production, combined with the big increases in construction and auto production, supported this shift.
“Chinese finished nickel imports accelerated to 328,000 t in 2009 from 185,000 t in 2008. We estimate that by the end of 2009 there could be as much as 100-120,000 t of nickel cathodes stockpiled in China, with the majority of the products coming from the international market.
“Chinese imports of iron ore is one the key highlights in 2009, with imports hitting an astonishing 628 Mt in 2009, up from 444 Mt in 2008. This partly reflected price-related cuts in supply at domestic marginal iron ore producers (on an iron units basis) over the course of 2009. We estimate that, in 2009, as much as 70-80 Mt of domestic concentrates (63%) has been put offline due to lower selling prices relative to their cash cost of production.
“Most of these closed mines were not back yet due the severe winter despite much higher selling prices on the spot market. However, we do factor a restart of domestic iron ore production after the winter following the recent strong rally in prices and stronger demand from the domestic market.
“The other highlight for Chinese bulk/steel trade data is that China turned from an exporter into a major coal importer in 2009. Thermal coal net imports came up to the level of 60 Mt in 2009, a swing in supply of more than 60 Mt from flat exports 2008.” This reflects lower production from Shanxi province following the government’s strong effort of closing down small illegal coal mines around the region. Macquarie suggests that the real production loss in 2009 from Shanxi province could be 180-220 Mt versus the reported output loss of 5%, from discussion with industry contacts. Also, the lower price of coal on the seaborne market created better opportunities for Chinese IPPs to use imported material from Australia, Indonesia and elsewhere.
“The strong rise in Chinese coking coal imports in 2009 attracted a lot of attention, with net imports hitting 38 Mt in 2009, up from 3.4 Mt in 2008. The majority of the rise in Chinese net imports came from the seaborne market, with 4.0-5.0 Mt imported from Mongolia.
“Mine consolidation in Shanxi and a strong increase in steel production turned China into an aggressive buyer of met coal in 2009, as the rest of the world fell sharply in 1H09. However, the gradual recovery in steel production elsewhere has pushed suppliers in Australia and North America to diversify exports in 4Q09 in an effort to meet contracted obligations with European, Japanese and Korean customers.”
