Metals & Mining
Seasonality in Chinese trade data -- John Redstone (514) 2XXXXXXXX john.redstone (AT) vmd (DOT) desjardins (DOT) com
Metal stocks may come under pressure today following the release of Chinese trade data for raw materials for February 2011. In particular, unwrought copper imports for February fell 35.4% mom and 26.9% yoy.
Firstly, we should point out that this figure includes imports of copper alloy, semi-fabricated products and unrefined smelter product, as well as refined metal. The import level for refined metal alone will not be released for another two weeks. Furthermore, we would point out that the year-to-date total (ie January plus February imports) is down only 2.4% yoy. The data is distorted by the timing of the one-week Lunar Holiday--which this year fell in early February. In addition, we understand copper consumers temporarily reduced orders before the Lunar Holiday because of the difficulty in obtaining financing for copper, which is currently at historically high prices. We hear that this situation has been rectified and orders have risen sharply in early March.
We would suggest that, given the quality of the data, a 2.4% yoy drop is statistically insignificant, ie shipments of copper to China in the first two months of 2011 were roughly unchanged year-over-year. This is in line with our forecast for Chinese copper imports of 2.9 MMT in 2011, the same level as 2010. Consequently, we would suggest that any pressure on the stocks of copper producers that results from this data is unwarranted and presents a buying opportunity.
We should also point out that year-to-date iron ore imports into China rose 22.6% yoy. We expect Chinese imports of iron ore to rise 10% in 2011 to 680 MMT. (To view tables, please click on link to pdf attachment below.)
Please see the Desjardins research website www.desjardins-securities.ca for complete company specific disclosures, analyst certification and legal disclaimers.
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A good report out of Desjardins this morning that goes beyond the headline drop in China copper imports and sees that it's really not that gloomy at all, though let's be clear that the Desjardins position on copper is strong bullish and has been for quite a while. Anyway, the analysis by Redstone & Co stands up to scrutiny, unlike the armwaving "we're all gonna die" feeling out there in the whacky world of markets this morning (you'd never guess that gold was selling at over $1.4k/oz, would yaz?).
Here's the intro blurb to the Desjardins piece, click through here to get your copy of the PDF (it's only 72k, so a light an easy download).