Melbourne, 10 June 2010

China: Cooling demand appears to be confirmed:A softer import report for May, with talk of government cooling initiatives potentially having an impact. This was not an arbitrage story - aluminium the exception – instead, the data highlighted weaker demand in May. On the positive side, the MoM declines were compared to a very strong performance in April. • Copper imports down 9.1% MoM in May despite Shanghai prices swinging to a US$54/t premium to LME prices during the month. Traders were clearly not prepared to take advantage of the opening arbitrage opportunity possibly confirming our recent Asia marketing observations that government cooling, particularly in the housing market, would start to take effect in the near term.

• Interestingly, copper scrap imports were down 10.8% MoM suggesting customers were not switching away from lower refined import volumes – again implying that overall demand conditions had softened. Falling copper treatment charges (making imported copper concentrate feed stock less palatable), were also unable to induce domestic smelters to switch to more profitable scrap.

• Aluminium looked more positive, with China moving further into a net importing position in May - imports reported 21kt higher than exports. We did see an emerging arbitrage opportunity evolve, which was likely taken advantage of – the Shanghai price discount to LME narrowing from US$280/t in April to around US$150/t in May.

• Iron ore imports fell 6%, but still remain at elevated levels compared to 2007 and 2008 numbers. The slightly lower volumes were consistent with the recent correction in Chinese iron ore and steel prices - reacting to rising government cooling speculation. The downward import trend may continue in June, which has, on average, been seasonally weaker than May.

• Crude oil imports fell 16% MoM. With China being a large net importer of oil, the lower volumes further confirmed that overall demand likely cooled in May. Encouragingly, the decline was off a near-record high level in April.

Ends --

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