London, 15 April 2010

The Chinese economic boom continues, with today’s data underlining the accelerating momentum: the 1Q10 GDP growth of 11.9% was the strongest since 2Q07, industrial production in March was up 18.0% YoY (while for 1Q10 it rose 19.6% YoY) and March retail sales also increased 18.0% while CPI eased back to 2.4%. Underlying commodity demand growth remains exceptionally strong, with urban FAI up 26.4% in 1Q10, while in March refinery runs were up 17.7% YoY (1Q10 was up 20.8% YoY) and electricity production was up 17.6% YoY (20.8%). It is clear that China is firing on all cylinders, with not only strong government infrastructure spend but accelerating consumption as well (strong refinery runs/gasoline demand reflect booming car sales, see page 2). We expect the growth momentum to continue for the balance of the year as the government indicated that the current proactive fiscal and easy monetary policies will be maintained.

Chinese crude steel production in March reached a new record of 54.97mnt, up 9.2% MoM and 21.9% YoY (see chart). Although daily production of 1.77mnt was marginally lower than February (1.80mnt), it still annualises to 646mnt – on track to meet our forecast full year output of 640-650mnt. At the Coaltrans China coal conference earlier this week, this level of output for 2010 was confirmed by a number of participants, with forecasts of coking coal imports of 50mnt (vs. 34.5mnt in 2009), even higher than our expectations of 40-45mnt.

This underpins our ongoing bullish view on coking coal prices. Meanwhile, Chinese steel prices have risen a further 3-4% in the past week, with front-month rebar as high as USD 660/t (now up 16% in the past month, see chart) and HRC in the USD 670-675/t range.

Global steel prices continue to rally strongly with US Midwest spot HRC now USD 740-750/t, while Metal Bulletin reports that some European producers are trying to push through HRC prices as high as USD 810/t (EUR 600/t) for later 2Q10 delivery (vs. current spot prices in the USD 700-740/t range).

Ends --