Macquarie predicts more Chinese growth

MACQUARIE analysts have reaffirmed expectations of a recovery in coking coal demand on the back of recent steel production figures and a rebound in Chinese economic growth.
Macquarie predicts more Chinese growth Macquarie predicts more Chinese growth Macquarie predicts more Chinese growth Macquarie predicts more Chinese growth Macquarie predicts more Chinese growth


Blair Price

On recent news, Macquarie noted the Japanese Iron and Steel Federation had called March as the bottom as steel orders at the nation’s mills grew 16.3% in April to 4.6 million tonnes.

In comparison, the analysts said Japan exported 8.2Mt of steel in the January to April period, the lowest total since 1999.

Macquarie also detailed the steel output growth from China.

Last month China’s steel production hit 46.5Mt, a rate of 547Mt per annum, with Macquarie saying this level was the highest since June 2008.

“The demand numbers have recovered way beyond anyone’s expectations at the start of this year, when there were some calling for crude steel production to fall as low as 420 million tonnes for 2009 as a whole compared to 500 million tonnes in 2008,” Macquarie said.

“The run rate year-to-date for production is now 525 million tonnes per annum, already above our recently upgraded forecast of 520 million tonnes for the year as a whole.

“There is absolutely no sign of production falling in the near term so it looks inevitable that we may have to upgrade our numbers further.”

The research division of the bank has credited the stronger than expected Chinese demand for its steel to a high increase in bank lending and the impact of the government’s four trillion yuan ($US585 million) stimulus package.

Macquarie said May data for Chinese industrial production was up 8.9% year-on-year for the month while fixed-asset investment was up 30% year-on-year to May and infrastructure investment was up 46.7%.

The bank also noted floor space under construction was up 11.7% year-on-year for the January to May period.

While still cautious about a possible supply response from China’s domestic coking coal industry, Macquarie has kept to its upgraded forecast for coking coal benchmark contracts to reach $US140 a tonne next year.

“Our price upgrade was driven by continued strong steel production in China and by continued constraints on China’s domestic coking coal production.

“These factors are likely to leave the market tight as the rest of the world recovers.

“They make a price increase more likely in 2010 and also improve the prospects for producers enforcing 2008 carryover obligations on their customers.”

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