Declines in Transports, Dr. Copper, and Equity Volumes are Seasonal Weakness (Until October)

Monday, August 13th, 2012

by Don Vialoux, EquityClock.com

Upcoming US Events for Today:

• No Significant Events Scheduled

Upcoming International Events for Today:

1. The Bank of Japan releases the Minutes from its July meeting at 7:50pm EST.

The Markets
Markets in the US ended positive on Friday, despite concerning signs of economic contraction with China posting a disappointingly low trade surplus number for the month of July. Investors were expecting a surplus of $33.0B, up from the $31.7B reported previous, but the actual was a mere $25.2B. A shockingly low increase in exports at only 1.0%, off from the 8.8% analyst expectation, was the predominant factor behind the weak headline number, which is being pinched primarily by slowing demand from Europe. According to Econoday.com, “this was their worst performance for a non-holiday month since November 2009.” The impact of slowing exports from China is being picked up in the Baltic Dry Index (BDI), which tracks the price to ship freight over the world’s oceans. The BDI is once again pushing towards the lows of the year, signaling that economic fundamentals remain severely depressed. This is typically a leading indicator to equity market weakness.

The Baltic Dry Index is not the only shipping gauge that is under pressure. The Dow Transportation Index has been significantly underperforming the market for almost a month, hinting of weak demand for goods. The Dow Transports typically confirm broad market equity moves, leading markets higher when economic fundamentals are strong, and leading the markets lower when fundamentals are weak. The fact that this cyclical industry, Transportation, is not showing the same upside momentum as what the broad market showing is a significant concern. Higher oil prices are also pressuring transportation stocks, a situation which is seasonally typical into September and October.

Turning to the equity markets, last week saw the lowest equity market volumes for a non-Christmas holiday week in years. The S&P 500 ETF (SPY) was shown on Friday with a 4-day volume moving average. The fifth day, Friday, only weakened the average further. The Dow Jones Industrial Average is also showing a similar volume profile to SPY. Now take a look at the NYSE Primary Exchange Index, which showed the lowest 5-day volume average since the 1990’s. Low volume implies low conviction, often a precursor to market declines. Volumes are typically lower than average during the summer months, albeit not as low as present levels, picking up once again in September as traders return to their desks from summer vacation. As a result, September and October are known to be the most volatile months on the calendar as regular trading resumes.

Concerning activity remains evident in the price of Copper, often referred to as “Doctor Copper” due to its ability to predict broad market moves. Copper has maintained a long-term declining path over the past year, underperforming the market in the process. With expectations of further monetary stimulus overriding economic fundamentals, it would be expected that copper would react positively as well, producing positive results and outperforming the market before central bank officials confirm activity, similar to what occurred prior to the last two QE programs. Investors in the cyclical metal are showing signs of skepticism toward the prominent stimulus expectations, perhaps warning that fundamental concerns are still too serious to ignore. Copper seasonally declines between August and October due to economic factors, such as weak manufacturing demand.

Despite a number of warning signals that remain intact, bullish characteristics are prevailing within the price action of equity markets. The S&P 500 continues to maintain a trend of higher-highs and higher-lows following a June low. Significant moving averages (20, 50, and 200-day) are curling positive. Even bond prices are showing signs of coming under pressure, a positive for equity markets. Sell signals for broad market indices have yet to be confirmed, so although risks are increasing, maintaining appropriate allocations to equities appears prudent until technical indicators roll over. Seasonal tendencies for Presidential election years turn negative into September, so equities are within a window where a peak could be realized at any time. Be prepare to react accordingly.

Sentiment on Friday, as gauged by the put-call ratio, ended neutral at 0.99. The ratio broke out of a falling wedge pattern, which could be the precursor to elevated levels of volatility. The VIX has fallen back to levels where the market has been known to correct as complacency reaches extremes. Volatility remains seasonally positive through to October.

S&P 500 Index

Chart Courtesy of StockCharts.com

TSE Composite

Chart Courtesy of StockCharts.com

Horizons Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.37 (unchanged)
• Closing NAV/Unit: $12.39 (unchanged)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian

Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.

Tags: Baltic Dry Index, Baltic Dry Index Bdi, Bank Of Japan, Broad Market, Christmas Holiday, Don Vialoux, Economic Contraction, Economic Fundamentals, ETF, ETFs, Exports From China, Headline Number, Leading Indicator, Lows, Market Equity, Market Weakness, Oil Prices, Predominant Factor, Seasonal Weakness, Significant Events, Trade Surplus, Transportation Index, Transportation Stocks
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The HARPEX Index is superior to the Baltic Dry Index!

Friday, March 23rd, 2012

Like many analysts and economists I have been an avid follower of the Baltic Dry Index (BDI) as a so-called leading indicator of global economic activity. However, I have come to the conclusion that the BDI as such is of no further use to me. The massive growth in demand for commodities from especially China from 2005 to 2008 led to a significant increase in capacity as the number of ships built surged through until the 2010 crisis that resulted in a major change in supply from relatively inelastic to highly elastic. Furthermore, it means that changes in the Baltic Dry Index occur in what is essentially a downtrend or, put differently, in a bear market.

However, I have discovered an indicator that is far superior to the BDI. The HARPEX Index was developed by Harper Petersen, a global leading chartering agent. The Index is calculated by using the actual time charter rates for seven classes of ships. This index therefore measures the rates of moving mostly finished goods globally and is an excellent indicator of global consumer activity. Unfortunately the historical data on the website only date back to 2009. (http://www.harperpetersen.com/harpex/harpexVP.do)

In the graph below I depicted the HARPEX Index against my GDP-weighted Major Economies Manufacturing PMI as well as the Markit Eurozone PMI, with both the PMIs leading by two months. In the graph it is evident that the HARPEX Index should be rated highly as a coinciding indicator in any economic forecasting model. The value of manufacturing PMIs as leading indicator comes to the fore as it is evident that the GDP-weighted manufacturing PMI of the major economies leads the HARPEX Index by two months. The bottoming and subsequent rise of the PMIs in January this year indicated that the HARPEX Index would rise through end March.  It has indeed risen from $376 at the end of February to $393 currently. The slight weakening of the major economies’ PMI in February indicates that freight rates in April are likely to go nowhere and even decline.

Sources: Harper Petersen; CFLP; Li & Fung; Markit; ISM; Plexus Asset Management.

The value of the HARPEX Index can be seen in the following graph. During the great financial crisis in 2008/2009 the HARPEX Index fell to $300 and remained relatively unchanged until February 2010. The global manufacturing sector started to expand in August 2009 when the GDP-weighted Major Economies Manufacturing PMI rose above the 50 level in August 2009. It therefore took six months of global expansion to take up the slack in the container shipping industry. Thereafter the PMI and the HARPEX Index moved in the same direction, with the PMI leading by approximately two months.

Sources: Harper Petersen; CFLP; Li & Fung; Markit; ISM; Plexus Asset Management.

The current level of the HARPEX Index is indicative of how weak the global manufacturing sector really is. This sector is still in a much better shape than in 2009 as the HARPEX Index is still 30% higher than the presumably $300 absolute minimum level at which ships can operate. In my opinion any further strength in the global manufacturing sector is likely to have an immediate impact on global containerized freight rates as the sector is not recovering from a deep recession as it did in 2009.

In a recent article I presented you with a graph of my calculated PMI seasonal factors of the CFLP Manufacturing for China against the Baltic Dry Index, which  not only explained the weakness in the BDI but also the shorter-term movements in the BDI. I argued that January/February would also mean a seasonal low for the Baltic Dry Index and a major reversal would be evident in March and April.

Sources: CFLP; Li & Fung; I-Net Bridge; Plexus Asset Management.

The BDI subsequently made a low of 647 on 3 February and is currently at 897. Although the BDI is up 38.6% it is still a far cry from what it should normally have been in light of the usually strong seasonal period. It is therefore an indication of the underlying weakness of China’s manufacturing sector.

Although I argue that changes in the Baltic Dry Index occur in a bear market due to the underlying fundamental factors, the BDI should not be discarded in total as it does give an indication of the underlying strength of China’s manufacturing sector. I regard the HARPEX Index as a better coincident indicator of global economic activity.

Tags: Actual Time, Baltic Dry Index, Baltic Dry Index Bdi, Bear Market, Charter Rates, Commodities, Commodity, Conclusion, Economic Forecasting, Economists, Follower, GDP, Global Consumer, Global Economic Activity, Graph, Leading Indicator, Massive Growth, Pmi, Pmis, Ships, Time Charter
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Greece, The Baltic Dry, And… Oh My

Friday, February 3rd, 2012

Just when it seemed that nothing could possibly surprise about adverse Greek bank exposure, as these are beyond insolvent already relying on the ECB for day to day operations as is, here comes one more development, this time courtesy of the one index that has been in literal freefall in the past two months, and recently hit a 20+ year low – the Baltic Dry.

OpenEurope explains:

Another Exposure Which Could Sink Greek banks

An interesting but niche issue has come to our attention recently in relation to the on-going troubles in Greece. The ‘Baltic Dry Index’ (a measure of global shipping demand/prices) has fallen for a month straight to record lows. When this index falls it suggests that there is trouble in the shipping industry, raising questions over the stability of shipping firms. As it turns out many of these firms have secured their financing from Greek and other European banks – meaning if they start defaulting on their loans these banks could take losses. This raise further questions over the bank recapitalisation plans and whether such contingencies have been thought of in the second Greek bailout (which sets aside €20bn for Greek banks).

As a recent NYT article noted:

“Basil Karatzas, the chief executive of Karatzas Marine Advisors, a ship brokerage and finance advisory firm in Manhattan, estimated that European banks hold about $500 billion in shipping loans on their books and face nearly $100 billion in losses to restructure them.”

Furthermore, not only does global demand seem to be faltering (although the index may not be the best judge of this), there is also a massive over supply of ships – due to orders put in during the boom period in 2008 which are only just being completed now (the equivalent of 22.7% of the cargo shipping fleet is due be produced this year alone). This suggest a combination of supply and demand issues which means this could become a lasting problem and will not just be tackled with a boost in growth in Asia.

Data on exposure to shipping loans is scarce, but in 2010 Greek banks had a portfolio of $16bn just on Greek owned shipping. Other European banks had about a $50bn exposure. Of this the 4 largest UK banks had $16bn and 10 German banks had $18bn.

The volatility of the index should be kept in mind but it’s an interesting fresh angle on the problems in Europe. If things keep going badly in the shipping sector, which it seems almost certain they will, some banks could face an increase in the level of non-performing loans on their books. Given that capital buffers already seem to be spread pretty thin this could cause problems. Of course this could take time to have an impact, if it does at all, but worth keeping an eye on.

Tags: Advisory Firm, Bailout, Baltic Dry Index, Boom Period, Cargo Shipping, ECB, European Banks, Freefall, Global Demand, Global Shipping, Greek Bank, Greek Banks, Karatzas, Lows, Nyt, Nyt Article, Ship Brokerage, Shipping Demand, Shipping Firms, Shipping Industry
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Guest Post: Baltic Dry Index Signals Renewed Market Decline

Monday, January 30th, 2012

Submitted by Brandon Smith from Alt Market

Baltic Dry Index Signals Renewed Market Collapse

Much has been said about the Baltic Dry Index over the course of the last four years, especially in light of the credit crisis and the effects it has had on the frequency of global shipping.  Importing and exporting has never been quite the same since 2008, and this change is made most obvious through one of the few statistical measures left in the world that is not subject to direct manipulation by international corporate interests; the BDI.  Today, the BDI is on the verge of making headlines once again, being that is plummeting like a wingless 747 into the swampy mire of what I believe will soon be historical lows.

The problem with the BDI is that it is little understood and often dismissed by less thoughtful economic analysts as a “volatile index” that is too “sensitive” to be used as a realistic indicator of future trends.  What these analysts consistently seem to ignore is that regardless of their narrow opinion, the BDI has been proven to lead economic derision in the market movements of the past.  That is to say, the BDI has been volatile exactly BECAUSE markets have been volatile and unstable, and is a far more accurate thermometer than those that most mainstream economists currently rely on.  If only they would look back at the numbers further than one year ago, they might see their own folly more clearly.

Introduced in 1985, the Baltic Dry Index first and foremost is a measure of the global shipping rates of dry bulk goods, mostly consisting of vital raw materials used in the creation of other products.  However, it is also a measure of demand for said materials in comparison to previous months and years.  This is where we get into the predictive nature of the BDI…

In late 1986, for instance, the BDI fell to its lowest level on record, then, began a slow crawl towards moderate recovery, just before the Black Monday crash of 1987.

Coincidence?  Not a chance.  From 2001 to 2002, a similar sharp collapse in the BDI preceded a progressive drop in the Dow of around 4000 points, ending in a highly suspect (Fed engineered) illegitimate recovery.  In 2008, the index fell to near record lows once again just before the derivatives and credit crisis hit stocks full force.  To imply that the BDI is not a useful measure of future economic trends seems like an astonishingly ignorant proposition when one examines its very predictable behavior just before major financial downturns.

This is not to suggest that the BDI can be used as a way to play the stock market from day to day, or often even month to month.  MSM analysts rarely look further than the next quarter when considering any financial issue, and that is why they don’t understand the BDI.  If an index cannot be used by daytraders to make a quick buck in a short afternoon, then why bother with it at all, right?  The BDI is not an accurate measure of the daily market gamble.  It is, though, an accurate measure of where markets are headed in the long run and under extreme circumstances.

Over the course of the past month, the BDI has fallen around 65% from above 1600 to 726.  Mainstream economists argue that the BDI’s fall in 2008 was a much higher percentage, and thus, a 65% drop is nothing to worry about.  They fail to mention that shipping rates never recovered from the 2008 collapse, and have hovered in a sickly manner near lows reached during the initial credit bubble burst.  By their logic, if the BDI was at 2, and fell to 1, this 50% drop should be shrugged off as inconsequential because it is not a substantial percentage of decline when compared to that which occurred in 2008, even though the index is standing at rock bottom.  Yes, the useful idiots strike again…

Looking at the rate and the speed of decline this past month, it’s hard to argue that the current 65% drop is meaningless:

Another subversive argument against the BDI is the suggestion that it is not the demand for raw materials that is in decline, but the number of shipping vessels out of use that is growing.  A smart person might suggest that these two problems are mutually connected.  An MSM pundit would not.

In 2008, many ships were left to wallow in port without cargo, but this was due in large part to two circumstances.  First, demand had fallen so much that too many ships were left to carry too little raw materials.  Second, credit markets had sunk so intensely that many ships could not find trade financing necessary to take on cargo.  In either case, the BDI still falls, and in either case, it still signals economic danger.  The only way that the BDI could signal a major decline in shipping demand artificially or inaccurately is if a considerable number of ships under construction were suddenly released onto the market while there is no demand for them.  There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand.

What is the bottom line?  The stark decline in the BDI today should be taken very seriously.  Most similar declines have occurred right before or in tandem with economic instability and stock market upheaval.  All the average person need do is look around themselves, and they will find a European Union in the midst of detrimental credit downgrades and on the verge of dissolving.  They will find the U.S. on the brink of yet another national debt battle and hostage to a private Federal Reserve which has announced the possibility of a third QE stimulus package which will likely be the last before foreign creditors begin dumping our treasuries and our currency in protest.  They will find BRIC and ASEAN nations moving quietly into multiple bilateral trade agreements which cut out the use of the dollar as a world reserve completely.  Is it any wonder that the Baltic Dry Index is in such steep deterioration?

Along with this decline in global demand is tied another trend which many traditional deflationists and Keynesians find bewildering; inflation in commodities.  Ultimately, the BDI is valuable because it shows an extreme faltering in the demand for typical industrial materials and bulk items, which allows us to contrast the increase in the prices of necessities.  Global demand is waning, yet prices are holding at considerably high levels or are rising (a blatant sign of monetary devaluation).  Indeed, the most practical conclusion would be that the monster of stagflation has been brought to life through the dark alchemy of criminal debt creation and uncontrolled fiat stimulus.  Without the BDI, such disaster would be much more difficult to foresee, and far more shocking when its full weight finally falls upon us.  It must be watched with care and vigilance…

Tags: Accurate Thermometer, Baltic Dry Index, Black Monday, Brandon Smith, Corporate Interests, Credit Crisis, Derision, Economic Analysts, Folly, Future Trends, Global Shipping, Lows, Mainstream Economists, Market Collapse, Market Decline, Raw Materials, Shipping Rates, Slow Crawl, Statistical Measures, Wingless
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Baltic Dry Index – Sell-Off Overdone?

Tuesday, January 24th, 2012

The Baltic Dry Index crashed by 50.4% to 893 on Friday from a high of 1,799 in the last week of 2011 and is 58.2% lower than October’s high of 2,136.

Source: StockCharts.com

The Baltic Dry Index is generally viewed as a leading indicator of global economic activity as dry bulk primarily consists of commodities such as building materials, coal, metallic ores and grain. The massive growth in demand for commodities from 2005 to 2008 led to a surge in shipping rates as measured by the Baltic Dry Index. The demand and surging shipping rates subsequently resulted in a significant increase in capacity as the number of ships built increased sharply. Even during the great 2008/2009 crisis capacity continued to be increased as it takes two years to build a ship. Historically the capacity was generally tight and the supply seen as inelastic, resulting in marginal changes in demand causing rapid changes in shipping rates. The current significant surplus capacity in the industry means that supply exceeds potential demand to such an extent that supply elasticity has increased, resulting in rapid changes occurring in what is essentially a downtrend – yes, fundamentally the Baltic Dry Index is in a bear market as shown by the long-term chart below.

Source: StockCharts.com

But what causes the rapid changes in demand and therefore the Baltic Dry Index? My research indicates that global manufacturing demand has very little to do with it. The answer is Chinese manufacturing demand but not the actual level of manufacturing measured by the CFLP Manufacturing PMI. In previous articles I referred to the CFLP Manufacturing PMI that is supposed to be seasonally adjusted. Despite the seasonal adjustment, a seasonal trend is clearly evident and I therefore seasonally adjusted the series further. I was amazed to find that the monthly seasonal factors and the Baltic Dry Index track each other. The reason why is not hard to find, as China is by far the world’s biggest consumer and importer of commodities and therefore the biggest player in dry bulk. Seasonally weak periods in the economy will lead to low physical demand for commodities and therefore low freight demand. On the other hand, strong periods in the economy will lead to high freight demand.

In the graph below I depicted my calculated PMI seasonal factor against the Baltic Dry Index. I have also indicated China’s New Year’s Golden Week holiday on the chart as it coincides with and explains the reasons for the weak seasonal pattern in January/February. The impact on China’s manufacturing sector is massive as the New Year’s Golden Week lasts for 15 days and includes three public holidays, while factory workers are allowed to take Sundays off. This year New Year will be celebrated on January 23, and the festival will last until February 6. The onset of the festive season/weak seasonal patch is therefore the reason behind the tumble in the Baltic Dry Index.

Sources: CFLP; Li & Fung; I-Net Bridge; Plexus Asset Management,

January/February could also mean a seasonal low for the Baltic Dry Index as from a seasonal perspective March and April are the strongest months in China’s manufacturing sector. In March and April last year the Baltic Dry Index failed to rise rapidly due to Japan’s twin disasters in March that severely restricted trade between China and Japan.

Tags: Baltic Dry Index, Bear Market, Building Materials, Commodities, Extent, Global Economic Activity, Inelastic, Leading Indicator, Marginal Changes, Massive Growth, Metallic Ores, Pmi, Rapid Changes, Seasonal Adjustment, Seasonal Factors, Seasonal Trend, Shipping Rates, Ships, Supply Elasticity, Surplus Capacity
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Baltic Dry Index Slumps To Lowest Since January 2009

Tuesday, January 17th, 2012

The apparently critical-when-its-going-up-but-ignore-it-when-it-is-falling index of the cost of dry bulk goods transportation has ‘crashed’ in the last few weeks to its lowest level since January 2009 (back below 1000 according to today’s levels). Whether this is seasonal output differences or weather impacts, it seems clear that lower steel output in China and a decline in European imports is having its impact on global trade. The index has fallen for 19 days in a row, down almost 50%, its largest drop since the harrowing period of Q4 2008.

The change over the past 19 days (of freefall) is almost 50%, its largest drop since Q4 2008…

and only the third largest ever monthly percentage drop in dry bulk rates…

Charts: Bloomberg

Tags: Baltic Dry Index, China, Decline, European Imports, Freefall, Global Trade, Goods Transportation, Percentage Drop, Q4, Slumps, Steel Output, Weather Impacts
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Energy and Natural Resources Market Cheat Sheet (September 19, 2011)

Sunday, September 18th, 2011

Energy and Natural Resources Market Cheat Sheet (September 19, 2011)

Strengths

• The Global Resources Fund gained this week and outperformed its benchmark as energy- and industrial metal-related stocks rallied with major stock indices.
• The latest Steel Benchmarker price assessment by World Steel Dynamics showed further stability in global steel prices, with the majority flat over the past two weeks. The exception was U.S. hot rolled coil, which rose 5.1 percent sequentially to $768 per ton, arresting three months of consecutive falls.
• The Baltic Dry Index of freight costs increased 7 percent this week as shipments of iron ore remain robust. This is the fifth consecutive weekly gain for the Baltic Dry Index.

Weaknesses

• Seaborne iron ore prices ended the week lower for the first time in 5 weeks on weakening steel prices. After hitting 3-month highs of $181 per ton last week, the TSI reference price has fallen nearly 2 percent to trade below $178 per ton. Per analysts at Citigroup, sentiment in the Chinese steel market is still deteriorating and buyers remain inactive owing to the lack of any clear direction.
• Corn prices fell 4 percent this week on a government report that corn crop conditions have improved recently.
• Despite news of additional supply constraints, copper prices slipped 1 percent this week on concerns of slowing demand in Europe and Asia.
• Southern Copper cut its production forecast by 8 percent for the year. Output will fall to 600,000 tons, from an earlier estimate of 650,000 tons, CEO Oscar Gonzalez Rocha said.
• The International Energy Agency released its Oil Market Report this week, revising its global oil demand growth forecast lower for 2011 by 160 thousand barrels per day to 1.04 million barrels per day, and for 2012 by 200 thousand barrels per day to 1.41 million barrels per day. The IEA attributes lower non-OECD readings and reduced economic growth expectations as the prime reason for its downward revision.

Opportunities

• Reuters reported that power rationing in China will likely persist in the first half of 2012, and the deficit should be between 10 gigawatts and 15 gigawatts in the first half of 2012. Other than low water levels impacting hydropower supply, power output has been hampered by insufficient coal production, low coal quality and a mismatch between coal and power prices. The grid has asked the local government to subsidize additional power generation.
• According to Alberta’s Energy Minister Ron Liepert, Canada’s oil sands producers need to build at least two more pipelines the size of the controversial Keystone XL project if they are to meet their ambitious plans for growth. “As we move forward, there will be a need for other pipelines … By 2020, we may need three Keystones,” he said.
• Peru’s Finance Minister Miguel Castilla commented that the country’s overhaul of its mining tax system will maximize government revenue while ensuring companies proceed with more than $40 billion of investment in new mines. Castilla also stated that companies won’t pay more than 50 percent of their operating profits under the new tax regime. Under Peru’s existing system, royalties are based on sales. He said that the new system will be fairer because it levies taxes on operating profits instead of revenue, and companies with contracts that protect them from higher taxes will be subject to a separate levy on profits.
• Australia’s Bureau of Meteorology sees La Niña conditions developing in Q4 this year. Historically this would mean cold winters in the U.S. northeast and stronger demand for heating fuels.

Threats

• Workers at Freeport MacMoRan’s Cerro Verde mine in Peru launched an indefinite strike today after discussions with the government failed to reach an agreement on wages and working conditions. The mine represents roughly 2 percent of the world’s mined copper production.

Tags: Baltic Dry Index, Canadian Market, Copper Prices, Corn Crop, Corn Prices, Crop Conditions, Global Steel, Growth Expectations, Hot Rolled Coil, International Energy Agency, Iron Ore Prices, Major Stock Indices, Oil Market Report, Oscar Gonzalez Rocha, Prime Reason, Resources Fund, Southern Copper, Steel Dynamics, Steel Market, Supply Constraints, World Steel Dynamics
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Energy and Natural Resources Market Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

Energy and Natural Resources Market Cheat Sheet (May 30, 2011)

The Baltic Dry Index, once an accurate indicator of commodity demand and global economic activity, rose 0.5 percent to 1,474 points, the biggest weekly gain since March, on speculation that record scraping will ease an oversupply of capsize vessels. Ship owners have been incentivized to demolish older/obsolete vessels due to rising marine fuel costs and attractive scrap prices. In fact, this trend may strengthen given that shipping rates are still well below operating rates. Looking ahead, this rally may signal a bottom for the Baltic, particularly given exceptionally strong demand for commodities among emerging market countries that are rapidly building new infrastructure to support economic growth and to become competitive in the global marketplace.

Strengths

• The Department of Energy statistics this week reflect the rebounding U.S. oil demand from lackluster indications at the start of the month. The initial 18.1 million barrel per day reading on total demand has been followed by 18.5 million barrels per day and 18.9 million barrels per day in the latest release, as the return of refineries and petrochemical plants from outages helped ease some of the earlier noise.
• China’s daily output of crude steel reached a new high in the first 10 days of May at 1.95 million tons, despite worries about monetary tightening and power shortages, according to the China Iron and Steel Association.
• The Japan Copper and Brass Association reported this week that Japan’s output of rolled copper product rose 3.1 percent in April from March, with manufacturers ramping up production ahead of power shortages slated for the summer.
• Copper premiums in China climbed to a seven month high this week. Premiums paid by Chinese importers over the London cash price are being quoted as high as $120 a metric ton on a cost. Premiums are at the highest level since October and compares with about $70 at the start of May.
• Chinese oil demand is running higher year-over-year, up 11.5 percent to an impressive 947,000 barrels per day. Gasoline is up 13.8 percent and diesel has increased by 13.3 percent year-over-year.

Weaknesses

• Steel output in Japan, the world’s second largest producer, fell 6.3 percent in April year-over-year after the nation’s worst earthquake damaged plants and cut demand from customers including carmakers, reported by the Japan Iron and Steel Federation this week.
• According to the State Grid Corp of China, power deficit will amount to 30 gigawatts this summer and could rise to 40 gigawatts if thermal coal market tightens and water levels are below normal. The northern province of Hebei may face power shortfalls of up to 3.03 million kilowatts, the biggest gap since 2004.
• The National Union of Mineworkers, South Africa’s biggest labor organization is asking for a 14 percent pay increase, more than three times the inflation rate, according to employers represented by the Chambers of Mines.

Opportunities

• According to China’s National Bureau of Statistics, China’s annual demand for coking coal will rise by 180 million tons by 2015.
• India’s Department of Mines and geology has ordered a halt to operations at 99 iron ore mines in the Hispet-Bellary region in the south of Karnataka state, pending a survey. This will further weaken exports from India, which are already 12 million tons down year-over-year in the January through May 2011 period (Karnataka ports accounts for 5.3 million tons).
• According to Bombay Bullion Association President Prithvitraj Kothari, gold imports by India may rise to an all-time high in 2011 if the nation receives a good monsoon rainfall. Rainfall would result in boosting rural income and purchases could reach 1,000 metric tons; without good rain imports would stay between 650 tons to 700 tons.

Threats

• The International Lead and Zinc Study Group showed that the global zinc metal production registered a surplus of 111,000 tons in the first three months of 2011 over zinc metal usage.
• Chinese coal prices rose for ninth consecutive week, up $1.54 per ton last week to average $133.28 per ton for the week at Qinhuangdao port.
• Iran’s crude reserves increased by 758 million barrels per day following the discovery of a deposit of light oil in southern Iran.

Tags: Accurate Indicator, Baltic Dry Index, Chinese Importers, Copper And Brass, Copper Product, Crude Oil, Crude Steel, Emerging Market Countries, Energy Statistics, Global Economic Activity, Global Marketplace, Infrastructure, London Cash, Marine Fuel, Metric Ton, Obsolete Vessels, Oil Demand, Petrochemical Plants, Power Shortages, Rolled Copper, Ship Owners, Steel Association
Posted in Infrastructure, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Cheat Sheet (February 22, 2011)

Saturday, February 19th, 2011

Energy and Natural Resources Market Cheat Sheet (February 22, 2011)

Strengths

• According to analysts at Macquarie Capital, 2010 saw the fastest liquefied natural gas (LNG) demand growth on record, up over 30 million tonnes or almost 18 percent over the past year (to approximately 215 million tonnes), reflecting the considerable capacity additions brought on during 2010.
• Copper broke a new all-time high at $10,190 this week.
• Prices of precious metals edged higher across the complex for a second session this week, as equity markets eased and the dollar stabilized against the euro.
• Palladium prices reached $825.10 this week, the highest since March 20, 2001.
• The Baltic Dry Index has now moved up for the eighth consecutive session, in line with the rise in freight rates after the Chinese holidays.

Weaknesses

• Chinese banks extended 1.04 trillion Yuan ($157.8 billion) of new loans in January. The figure was 318.2 billion Yuan lower than a year ago, according to the People’s Bank of China (PBOC). This pullback in economic growth is due to inflation concerns.
• The world’s largest gold-backed ETF, SPDR Gold Trust said its holdings fell to 1,224 tonnes by February 15, a nine-month low.

Opportunities

• China’s steel output may rise 5 percent to 660 million tonnes this year, the Ministry of Industry and Information Technology said.
• Australian floods seem to be serving U.S. coal miners. According to the Energy Department in Washington, U.S. coal exports are poised to rise 8.8 percent this year to about 86.5 million tons, the highest since 1996.
• Silver’s use in the solar power industry has received much press this week. Silver is used in photovoltaic (PV) cells in solar panels, and as this industry grows rapidly, so has its demand for silver. This sector’s requirement for the metal has now become larger than the silverware market.
• Chinese oil major PetroChina Co. Ltd. plans to boost annual coal bed methane (CBM) gas output 12-fold to 4 billion cubic metres (bcm) by 2015 from 0.3 bcm in 2010, a company official said.
• Rio Tinto Group forecasts high copper prices will continue amid rising demand and before output from new projects eases a supply shortfall. Tom Albanese, CEO of Rio Tinto, said in Australian Broadcasting Corp.’s “Inside Business” television program that he expects to see a continued period of strong copper pricing, largely because many of the large mines, including Rio, see declining grades, deepening pits.

Threats

• China’s inflation exceeded the government’s 2011 target for a fourth month as prices excluding food rose the most in at least six years. Consumer prices rose 4.9 percent last month from a year earlier after a 4.6 percent gain in December, the statistics bureau said. Producer-price inflation quickened to 6.6 percent from 5.9 percent. The acceleration reflects higher rents, a 53 percent surge in money supply in the past two years and increasing domestic demand in China.

Tags: Baltic Dry Index, Bank Of China, Capacity Additions, China, Chinese Banks, Chinese Holidays, Chinese Oil, Coal Bed Methane, Coal Exports, Coal Miners, energy, ETF, Freight Rates, Gas Lng, Gold, Inflation Concerns, Liquefied Natural Gas, oil, Palladium Prices, Pboc, Petrochina Co Ltd, precious metals, Pullback, Pv Cells, Silver, Steel Output
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Energy and Natural Resources Market Cheat Sheet (January 31, 2011)

Saturday, January 29th, 2011

Energy and Natural Resources Market Cheat Sheet (January 31, 2011)

Strengths

• China imported 164.8 million tonnes of coal in 2010, up 31 percent compared to 2009, and exports dropped 15 percent to 19.03 million tonnes. Indonesia remains China’s largest supplier followed by Australia.
• The latest U.S. weekly crude steel output reported by the AISI is back to levels last seen in June, at 83.3mtpa, representing a capacity utilization rate of 73 percent.
• China’s stainless steel output rose 28 percent last year to 11.3 million tonnes. Imports fell by 18 percent to 1.07 million tonnes, while apparent consumption increased 14 percent, according to the Stainless Steel Council.
• India pumped 3.34 million tonnes of crude oil in December, the highest monthly output, according to the oil ministry.

Weaknesses

• U.S. natural gas futures prices fell 8.5 percent this week on a forecast for milder weather.
• The Baltic Dry Index fell to the lowest level in almost two years as Australian floods curbed coal cargoes and supply of new vessels increased.

Opportunities

• Environmental regulators in Texas have approved an air quality permit, thus paving the way for construction of a thermal power plant in Corpus Christi. The EPA had earlier requested that Texas deny the permit. This event adds to the ongoing feud between Texas and the EPA. There are still further permits needed for the plant to come to reality, and in all likelihood, this initial permit will be challenged.
• Copper prices will rise as the global economy grows and construction recovers in developed countries, according to Caterpillar, Inc. Copper will average $4.25 a pound in 2011, Caterpillar said in its fourth quarter earnings statement. That’s up 24 percent from last year’s average. Global production of copper will increase 2 percent as prices are currently very attractive for new investment, the company said.

Threats

The latest estimates by the Queensland Resources Council suggest coal production loss may cost the industry up to $9.5 billion and output may go down by up to half of forecast production of 51 million tonnes during the quarter ending March 31. The report says that 85 percent of Queensland’s mines are “impaired by excess water.”

Tags: Aisi, Apparent Consumption, Baltic Dry Index, Capacity Utilization Rate, Cargoes, Caterpillar Inc, China, Copper Prices, Crude Steel, energy, Fourth Quarter Earnings, Gas Futures Prices, Global Economy, Global Production, India, Natural Gas Futures, Natural Gas Futures Prices, Oil Ministry, Paving The Way, Queensland Resources, Resources Council, Steel Output, Thermal Power Plant
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