Posts Tagged ‘Crude Steel’

Energy and Natural Resources Market Radar (April 30, 2012)

Sunday, April 29th, 2012

Energy and Natural Resources Market Radar (April 30, 2012)

The S&P 500 Energy Index has decreased about 8 percent over the past 12 months. This decline represents a one-sigma event in standard deviation terms. Historically, this has occurred only 18.5 percent of the time in the past 10 years. As shown in the chart below, there were only two episodes when performance was worse on a one-year rolling basis: During the 2002-2003 period and during the global financial crisis in 2008-2009 when the U.S. was in a recession. To us, the S&P 500 Energy stocks represent a buying opportunity, as adding to core positions after a correction is a prudent way to invest.

Buying Opportunity in S&P 500 Energy Index

Strengths

  • According to the World Steel Association, global steel production rose 1.8 percent year-over-year to 132 million tonnes in March and China produced 46.6 percent of the world’s crude steel.
  • Emerging market oil fundamentals continue to improve with Indian oil demand in March higher year-over-year by 5.4 percent (175 thousand b/d) to a record high of 3.403 mb/d. Diesel demand was higher year-over-year by a strong 10.8 percent (143 thousand b/d) to 1.464 mb/d, buoyed by higher diesel penetration in automobiles and strong growth in the power sector too.
  • Central bank gold buying in March was confirmed by a data release from the International Monetary Fund on Tuesday. Mexico’s central bank purchased 541,000 ounces during the month, Russia added 532,000 ounces, Turkey bought 369,000 ounces and Kazakhstan’s reserves rose by 138,000 ounces. Although the buying is not large relative to central bank purchases over the same period in 2011 (for Mexico in particular), confirmation that central banks are still net buyers should be overall positive for the market.
  • According to the China Electricity Council (CEC), electricity consumption in the country grew by 6.8 percent year-over-year in first quarter 2012 to 1,166 billion kWh. Meanwhile, March’s growth rate was 7 percent year-over-year, with a decent pickup from manufacturing industry consumption at 7.6 percent year-over-year compared with 2.1 percent year-over-year for the quarter as a whole. Copper hit a three-week high on Friday as tight supplies of the metal outside China kept prices supported, although there are worries about the escalating debt crisis in Europe following a Spanish credit downgrade.
  • In a sign of tightening supplies, copper inventories in LME-registered warehouses fell to their lowest levels since November 2008 at 251,825 tonnes, with cancelled warrants – the metal earmarked for delivery – at 39.5 percent of total stock. In Shanghai, copper stockpiles fell to the lowest since February to 204,762 tonnes.

Inflows into Commodities Bounced Back in First Quarter 2012

Weaknesses

  • World Steel (WSA) published its updated Short Range Outlook for apparent steel use. The 2012 forecast was revised down by 3.5 percent to 1,422 million tonnes. Tonnage wise, this is mainly driven by China where the 2012 forecast was revised down by 33 million tonnes, or 4.8 percent. The global revision was 51 million tonnes. The forecast for the EU-27 was revised down by 5 percent and the NAFTA estimate is up slightly by 0.6 percent. 2012 growth is expected to be 3.6 percent, down from 5.6 percent in 2011. Steel use in 2013 is expected to grow 4.5 percent. Growth in China is expected to be 4 percent both in 2012 and 2013. These forecasts from WSA regarding Chinese steel use growth are the lowest ones yet. Chinese steel usage is expected to be 45.6 percent of global usage in 2012. The EU-27 is the only region where steel use is expected to fall in 2012, by 1.2 percent.
  • According to the National Development and Reform Commission, China’s crude oil output fell 1.4 percent year-over-year to 50.03 million tonnes in the first three months of 2012.

Opportunities

  • Credit Suisse estimates that Chinese total oil demand will rise to 12.2 million barrels per day by 2015, up from approximately 10 million barrels per day currently and will reach 15 million barrels per day by 2020 as China’s car fleet grows to record levels.
  • Japan will continue using U.S. coking coal as an alternative to major suppliers such as Australia, but for the longer term, countries such as Mozambique and Russia will play a larger role in the Asia-Pacific coking coal market, the head of Japan’s steel association said this week. Coking coal imports by Japan from its top supplier in Australia will fall sharply in April and May due to force majeure declared on April 2 by BHP Billiton Ltd. and Mitsubishi Corp. at mines they jointly own, Hayashida said. This was due to strikes and heavy rain. Japan’s imports of U.S. coking coal surged in March, rising 57 percent on the year, while its imports from Australia dropped 17 percent, government data showed.

Threat

  • Peru’s miners plan to start a national strike on May 14 to protest worker layoffs at mines and refineries, said Luis Castillo, General Secretary of Peru’s Mining Federation. Miners are protesting the dismissal of workers at Gerdau unit Empresa Siderurgica del Peru SAA and Shougang Corp.’s Hierro Peru iron mine, as well as a decision by creditors to liquidate Renco Group Inc.’s zinc smelter, Castillo said. Union officials will meet for talks with President Ollanta Humala, he said.

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Energy and Natural Resources Market Radar (March 12, 2012)

Sunday, March 11th, 2012

Energy and Natural Resources Market Radar (March 12, 2012)

Active Rigs

Strengths

  • Barclays Capital highlighted robust oil figures out of China this week. Refinery runs touched a record high of 9.368 million barrels per day in January, up 6.7 percent year-over-year. February refinery runs were buoyant and stayed close to those record levels at 9.304 million barrels per day. The record refinery runs come on the back of new processing facilities starting up with Sinopec and PetroChina starting a combined 360 thousand barrels per day of new crude processing units in the last quarter of 2011.
  • This week The Silver Institute demonstrated that a steady increase in demand has driven the price of silver up 20 percent in the first 10 weeks of the year, ahead of gold, platinum and palladium. The strength in silver demand has come via a surge in buying of silver-based ETFs, which now represents 586 million ounces of silver, up 10 million ounces year-to-date. In addition, there has also been increased demand for physical silver bars. Global industrial silver demand is expected to contribute to strong silver demand going forward. Total silver demand is forecast to grow 36 percent from 2010 to total 666 million ounces in 2015 due to new applications in industry and lack of substitution.
  • Reuters reports that China’s daily crude steel runs reached 1.926 million tons in February, up from 1.83 million tons in January. The increase came as mills began ramping up operations ahead of a projected recovery in demand during March and April.
  • The U.S. Energy Information Administration (EIA) released data that supports current crude prices. Despite indicating that crude inventories were up, the numbers also showed that stockpiles of refined products were down.
  • Preliminary port data shows Brazilian iron ore exports totaled 23.3 million tons in February. The pace equals 294 million tons per year (mtpy) on an annualized basis, an increase from January but still down 8.7 percent year-over-year. Exports to China totaled 165 mtpy, down only 1.4 percent year-over-year. This put China’s share of Brazilian exports at 56 percent, the third-largest amount since 2009. On the other end of the spectrum, exports heading to South Korea were at the volume in over 10 years.
  • Iraq oil production is now over 3 million barrels per day, the country’s highest output since 1979, according to Deputy Prime Minister Hussein al-Shahristani.

Weaknesses

  • Preliminary Australian port export figures for February show a month-over-month dip in both met and thermal coal export volumes as a combination of weather-related issues and industrial action hindered shipments during the month. Met coal exports were 139 million tons per annum, down 14 percent month-over-month and the lowest since July. However, the amount of exports was still well above the 107 million tons per annum level seen in February 2011. Thermal exports were 135 million tons per annum, down 13 percent month-over-month but up 14 percent from the previous year.
  • The Central Bank of Chile reported that the country’s copper export revenue totaled $3.37 billion in February, slipping nearly 20 percent from $4.17 billion in January. The drop in copper export revenue comes despite a 5 percent month-over-month increase in the average copper price in February and supports our view that Chilean mine production has struggled so far in 2012 with January production reflected in February exports.
  • Natural gas futures on NYMEX touched a 10-year low this week as mild winter weather across North America has reduced heating demand. Natural gas inventories were 2.433 trillion cubic feet as of March 2 which is 46.2 percent above the five-year average and 45.3 percent above a year ago. On average, this winter has been 21 percent warmer than last year.

Opportunities

  • South Sudan plans to build a temporary underwater oil pipeline along the Nile as part of a project to deliver crude oil for export from ports in Kenya and Djibouti. The pipeline would extend from oilfields to the capital of Juba, where the crude would be transferred to trucks and taken on to Kenya and Djibouti.
  • According to the International Oil Daily, China will increase the storage capacity for the second-phase expansion of its strategic petroleum reserves (SPR) program to 32.9 million cubic meters. This would allow the country to store almost 210 million barrels of crude, 24 percent higher than initially planned. At the end of last year, China had built a total of 362 million barrels of crude oil storage capacity including 142 million barrels of SPR capacity and 220 million barrels of commercial oil storage capacity; equivalent to 40 days of the nation’s oil consumption.
  • On the supply side, production is expected to finally resume at Freeport McMoRan’s Grasberg copper mine in Indonesia after clashes with workers delayed the restarting of production. Grasberg produces roughly 550 thousand tons of copper per year but Bloomberg says the company is reviewing its full-year production forecast following the disruption. Newmont Mining is also reviewing the economics of its $4.8 billion Minas Conga copper and gold project. The project, which at peak production expected in 2014-15 would yield around 70-105 thousand tons per year of copper, is still on suspension following protests by local residents and politicians. The dispute is predominantly over water usage and environmental concerns and the Peruvian government has undertaken an environmental impact review of the project, the results of which are expected to be ready in a few weeks.
  • The Chevron Phillips Chemical Co. said its industry may spend $30 billion to build U.S. factories that convert natural gas into plastics because shale gas has made American production the cheapest outside the Middle East. Output from shale formations will yield enough natural gas liquids (NGLs) such as ethane to support about five new plants that produce ethylene and related plastics, an executive said. Each facility will cost $5-$6 billion and will be built over more than a decade. In addition, U.S. plastics exports may surge as new plants start, creating the need for new infrastructure to handle the increased shipments, the executive said.
  • After Colombia’s coal production reached 84.7 million tons in 2011, the government forecasts its coal production to reach 97 million tons in 2012 and grow to 120 million tons by 2014. Colombia expects production to stabilize beyond 2014. The nation is seeing increased investment in the coal and gold mining sectors recently with the two evenly splitting $4 billion worth of investment in 2011.

Threats

  • A one-day nationwide strike in South Africa led by the Congress of South African Trade Unions in protest of new road tolls and short-term contract labor agencies hit the mining sector, in particular gold and coal, this week. Gold Fields and Harmony Gold said that their operations were brought to a halt, as most of the workers took part in the strike. Anglo American’s local coal unit also took a hit. However, platinum mining remained unaffected as Impala Platinum and Anglo American Platinum continued to operate normally. Though Impala’s Rustenburg mine is recovering from a six-week long strike, the platinum group metals (PGM) sector remains at risk in our view due to the increasing frequency of labor-related disruptions this year.
  • The Times of India reports that Indian Railways on Tuesday decided to increase freight rates by up to 20 percent for several commodities. The move is expected to increase prices of an array of goods, ranging from coal to fertilizers. With inflation, led by food, at a comfortable level, the freight hike won’t spare food grains. However, the agriculture ministry will pay a higher subsidy to ensure that consumers are not adversely affected. As part of the freight rationalization drive, railways increased the rate to be charged per ton per kilometer and changed the distance band to increase its earnings. The hike comes at a time when railway minister Dinesh Trivedi is under pressure to raise resources to drive the state-run transporter out of a financial mess created by his political party boss Mamata Banerjee.
  • Bloomberg reports that China’s National Administration has decided to cap coal usage at about 4.1 billion tons of standard coal, a cap that would come into effect starting 2015, according to unconfirmed reports. China may announce the details of the plan around the middle of the year. China consumed a total of 3.48 billion tons of standard coal during 2011, up 7 percent year-over-year.

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Energy and Natural Resources Market Radar (December 4, 2011)

Sunday, December 4th, 2011

Energy and Natural Resources Market Radar (December 4, 2011)

This chart from Deutsche Bank shows how the projections made by the International Energy Agency (IEA) have progressed since July 2007. In 2007, the IEA estimated that oil demand over 2008 would range between 86 to 88 millions of barrels a day. Except for 2009, the IEA’s forecasts increased. The 2012 projection is currently much higher, with the IEA forecasting oil demand to be around 90 to 91millions of barrels per day.

Progression of International Energy Agency Oil Demand Forcast

Strengths

  • Crude oil gained 4 percent this week to close above $100 a barrel in response to improving U.S. economic data, and a coordinated effort by global central banks to provide additional liquidity to Europe.
  • Palladium is poised for a 12 percent advance this week, the most since December 2010, on concern that stockpiles are dwindling in Russia, the biggest supplier.
  • Following months of contraction, steel market trends reversed in November with base prices increasing for all products.
  • Iron ore bounced back strongly after more than a week of losses as falling prices encouraged some steel mills in China to return to the market. Iron ore with 62 percent iron content rose more than 2 percent to $133.60 a ton on Thursday.
  • OPEC November crude production is up 390kb/d to a total of 30.4 mmb/d, the highest level in three years, says Bloomberg.

Weaknesses

  • China’s daily crude steel output fell to 1.664 million metric tons in the first 10 days of November, the lowest level in a year.
  • According to the India Coal Market Watch, the country’s coal production decreased by 9 percent to 39.59 mn tonnes in Oct 2011as compared to 43.51 mn tonnes in 2010.
  • OECD demand is declining. However, virtually all of the world’s oil demand growth is in non-OECD nations, which has been resilient despite global economic concerns.

Opportunities

  • Copper stockpiles monitored by the Shanghai Futures Exchange declined to the lowest level since July 2009, bourse data showed today.
  • Vale plans to invest $21.4 billion in 2012 including investment on sustaining capacity. Vale made much of the difficulty it has in spending all the money it would like to and has had to significantly scale back its spend due to ongoing delays in getting project approvals. Its original capex plan for 2011 was $24 billion but in the first three quarters of 2011 it only managed to spend $11.3 billion, implying a major shortfall this year, probably by $6 to $8 billion.
  • Iraq’s semi-autonomous Kurdish region will go forward with its exploration deal with U.S. oil major Exxon Mobil despite objections by the central government in Baghdad, the Kurdish president said on Wednesday.
  • The OPEC Secretariat, using a GDP forecast of 3.6 percent in 2012 believes oil growth will be 1.2mmb/d.

Threats

  • Oil price volatility could escalate as tensions between the West and Iran have ratcheted up over Tehran’s nuclear program, and with the suggestion that Europe could join the United States in banning the purchase of Iranian crude oil.

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Energy and Natural Resources Market Radar (November 21, 2011)

Saturday, November 19th, 2011

Energy and Natural Resources Market Radar (November 21, 2011)

Aluminum Supply Growth

Strengths

  • The Global Resources Fund’s exposure to paper & forest stocks helped performance this week and was one of the better performing industry groups in our natural resources universe.
  • The China Iron and Steel Association reported that crude steel output has continued to decline over the start of November, falling to an annualized rate of 607 million tons per annum from 627 million at the end of October. Accordingly, Chinese mills have responded quickly to weaker pricing and reduced production by more than 50 million tons per annum over September-October. This has helped bring the physical market back into balance, allowing steel prices to stabilize and market inventory to fall.
  • Royal Dutch Shell said that it has achieved the world’s deepest well completion on record in the Perdido development in the Gulf of Mexico. Shell said the Tobago field well was drilled in water depths to 9,627 feet and has started production.

Weaknesses

  • Both precious and industrial metals stocks underperformed our benchmark this week, which negatively impacted fund performance.
  • The price of natural gas fell to a 52-week low of $3.32 per million british thermal units, as inventory levels reached 3,850 billion cubic feet, or 6 percent above the 5-year average.
  • Despite breaking the $100 per barrel level, crude oil prices fell week-over-week to approximately $97 per barrel.
  • According to industry analysts, aluminum prices have dampened because of high inventories and weak growth prospects. Aluminum prices have tumbled nearly 20 percent in the past three months to around $2,165 per ton.

Opportunities

  • Mineweb highlighted that Peru’s regional government said that progress was being made in wage talks between Freeport McMoRan’s Cerro Verde and striking miners, who have just recently extended the strike to the third month. The regional government now believes the dispute at the mine that produces 2 percent of the world’s copper can be solved without government intervention, a possible sign President Ollanta Humala wants to stay out of the conflict.
  • Minter Ellison, a legal firm, has stated that the removal of the ban on uranium exports to India will present new opportunities and have huge implications to Australia. President Barack Obama visited Australia this week, leaving Australian Prime Minister Julia Gillard to put some hard lobbying into place to overturn a ban on supplying uranium to India.

Threats

  • Mineweb reported that BHP Billiton was wary on the commodity market outlook. The world’s biggest miner warned that some customers are starting to face tighter access to trade finance and some are cutting production. “The heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the markets” for commodities.

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Energy and Natural Resources Market Cheat Sheet (July 4, 2011)

Sunday, July 3rd, 2011

Energy and Natural Resources Market Cheat Sheet (July 4, 2011)

Indian Ore Exports

Strengths

  • Crude oil futures (West Texas Intermediate) closed higher by 4 percent to just under $95 per barrel this week as investor sentiment improved following progress in the Greek parliament. Also, the market digested news last week out of the IEA that it would release 60 million barrels of oil from strategic petroleum reserves.
  • Japanese aluminum shipments rose 1.9 percent month-over-month and 0.8 percent year-over-year to 166,885 tons in May, despite a drop in flat rolled product shipment due to the drop in auto output following the earthquake and tsunami in March.
  • Chile’s industrial production rose by 9.7 percent year-over-year in May, beating consensus estimate of 6.5 percent. Industrial sales increased 6.9 percent in May, compared with consensus at 5.6 percent.
  • Japan’s output of rolled copper products rose 2.4 percent in May from April as strong demand for environmentally friendly air conditioners offset weakness in chips and cars.
  • According to German Steel Federation, crude steel output in Germany will rise about 4 percent to 45 million tons in 2011 on demand from carmakers and machine builders.
  • The latest Indian data for May placed oil demand at 3.25 million barrels per day, the second highest ever, constituting a year-over-year increase by 5 percent of 154 thousand barrels per day.

Weaknesses

  • Corn futures fell 4 percent to $6.40 per bushel this week after the USDA surprised the market with a bearish stocks and acreage report. However, uncertainty remains over the accuracy of the acreage survey, and the USDA announced it will resurvey growers in four states in July.
  • Domestic refined zinc production in China fell by 6.7 percent year-over-year in May as smelters cut utilization rates in the face of weak demand and low prices. The weak production and rising Shanghai Futures Exchange inventories reflect a fall in demand by 2 percent year-over-year from the oversupplied galvanized steel sector.
  • Japan’s refined copper exports plunged 52 percent in May from a year earlier to 23,764 tons for the eighth month of year-over-year decline, according to the Ministry of Finance.
  • As a result of rains in southeastern Brazil, sugarcane harvesting slowed down in the first half of June. Mills in Brazil’s center-south region crushed 34.59 million tons of sugarcane, down 13 percent year-over-year, and sugar production fell 14 percent to 1.99 million tons while ethanol output fell 16 percent.
  • Exports from Orissa’s Paradip Port, the second largest in India, declined by 13.6 percent year-over-year the past quarter. Orissa state, India’s largest iron ore producing region, saw a four-fold increase in export taxes, and local government restrictions remain stringent.

Opportunities

  • According to the Bombay Bullion Association, India may import about 20 metric tons to 25 metric tons of gold this month, unchanged from a year earlier.
  • The Chinese Ministry of Finance announced this week the reduction and removal of import duties on oil products, effective July 1, to ensure sufficient supply ahead of peak summer demand. Import duties on jet fuel and diesel will be abolished, from current levels of 9 percent and 6 percent, respectively. The import duty on gasoline and fuel oil will be reduced to 1 percent.

Threats

  • BHP Billiton is facing labor strikes at its Australian coking coal mines as a second offer for paid meetings with workers was rejected this week. The Construction, Forestry, Mining and Energy Union, the Australian Manufacturing Workers Union, and the Communications, Electrical and Plumbing Union have applied to extend the period for workers to hold industrial action for another month.
  • Sugar mills in India, the world’s second biggest producer of sugar, is seeking to export more after winning government approval to ship 500,000 metric tons, potentially widening global supplies and lowering prices.
  • Russian state rail operator (RZhD) is set to hike railcar tariffs by 4.6 percent in July, following a 4.6 percent rise in January. Rising transportation costs are already hurting Russian coal producing companies and hurting the countries’ export potential with exporters struggling to match alternatives.
  • National Aluminium, India’s third-largest producer may have to cut output by as much as 10 percent this fiscal year because of a coal shortage.  Production may drop to about 400,000 metric tons in fiscal year 2012 from 443,600 tons a year earlier. Coal India, which provides about 80 percent of the fuel National Aluminium needs for its power plant, may fail to meet a supply contract.

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Energy and Natural Resources Market Cheat Sheet (June 13, 2011)

Saturday, June 11th, 2011

Energy and Natural Resources Market Cheat Sheet (June 13, 2011)

The Total Energy Consumption in China Surpasses U.S.

Strengths

  • BP published its June 2011 Statistical Review of World Energy this week, which recorded a 5.6 percent increase in global primary energy consumption, the largest since 1973. China’s energy consumption grew by 11.2 percent to make up 20.3 percent of the world total, eclipsing the U.S. for the first time.
  • Mexican mining production rose 15 percent year-over-year in April and 66 percent month-over-month to 31,893 tonnes and reportedly includes full production at the Buenavista del Cobre mine.
  • The latest European stockholder steel shipment data highlights the positive demand conditions for the regional steel sector in late first quarter. Flat product steel sales were up more than 10 percent year-over-year, exceeding the 2007 record annual average for the first time since the global financial crisis.
  • Ukraine’s coal production rose 9.9 percent to 33.9 million tonnes in the first five months of the year from a year earlier, reported the Energy and Coal Industry Ministry.
  • The latest data marks total U.S. oil demand at a strong 19.13 million barrels per day, up 0.22 million barrels per day week-over-week, continuing with an upward trend of the weekly reading which began the month of May at 18.16 million barrels per day. The data shows that the weakness earlier in the month pertained primarily to refinery and petrochemical plant outages rather than the falling away of underlying demand in the U.S.

Weaknesses

  • According to the China Iron and Steel Association, daily output of crude steel in China during the last week of May fell 3.46 percent week-over-week reaching 1.915 million tonnes.
  • The China Association of Automobile Manufactures reported that vehicles sales in China shed 13.95 percent month-over-month to 1.19 million in May 2011. China’s automobile sales dropped for the second month in a row pointing to slowing demand after Beijing stopped offering incentives and introducing new limits on car purchases earlier this year.
  • Preliminary data suggest that total oil products demand in April in the three largest European markets (France, Germany and Italy) fell by 3 percent year-over-year, similar to the decline seen in March, with most of the decrease due to very low sales of heating oil (down 29 percent year-over-year) resulting from very warm weather.

Opportunities

  • The president of Baosteel’s stainless steel unit reported this week that he expects stainless steel consumption in China to grow 5 to 7 percent annually over the next five to ten years.
  • Global natural gas use may rise more than 50 percent by 2035 from 2010 levels and meet more than a quarter of global energy demand, according to the International Energy Agency.
  • The U.S. Department of Agriculture estimated corn plantings at 94 percent complete, below the five-year average pace of 98 percent, leaving about 5.5 million acres (2.2 million hectares) of the projected 92.2 million yet to be seeded.

Threats

  • China’s National Development and Reform Commission (NDRC) warned thermal coal producers against price increases, and indicated fines of up to five times the revenue generated. The NDRC has been trying to stabilize the coal market but rising international prices is leading to discontent among miners, according to Bloomberg News.
  • Allegations of serious malpractice from a short selling specialist sent shares in Sino-Forest plunging by two-thirds, despite strong denials of the claims by the Toronto-listed timber group. The shares shed 70 percent in two sessions after the allegations, wiping about $3 billion off the company’s stock market value.

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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.

Durable Goods

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.

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Energy and Natural Resources Market Cheat Sheet (May 16, 2011)

Saturday, May 14th, 2011

Energy and Natural Resources Market Cheat Sheet (May 16, 2011)

Chinese Domestic Iron Ore Not Being Displaced Fast Enough

Strengths

  • Coal prices at Richards Bay Coal Terminal rose to the highest level in almost a month, gaining 0.3 percent to $123.93 a ton last week. The price climbed 45 percent in April from a year earlier and 1.6 percent from March.
  • China released its oil trade data this week that implied total oil demand growth for the month of April was up a robust 12 percent year-over-year. China’s crude oil imports increased 1.8 percent year-over-year to 5.26 million barrels per day.
  • In Indonesia, tin surveyed for export prior to shipment increased by 23 percent year-over-year to 9,708 tons in April, the highest monthly total recorded in the last two years. It’s the highest figure for April since the export licensing system was first introduced in 2007.
  • China Iron and Steel Association said this week that China’s daily crude steel output reached 1.93 million tons in April, up 1 percent month-over-month.

Weaknesses

  • Coal sales at South Gobi are being threatened by supply side disruptions as the Russian suppliers, from whom Gobi had been buying its diesel needs, are facing shortages.
  • Even after constant tightening efforts by the Chinese government, the statistics bureau reported China’s consumer prices rising 5.3 percent on a year-over-year basis in April. This would exceed the government’s full-year target of 4 percent. The gain was more than consensus estimate of 5.2 percent and producer prices increased 6.8 percent.
  • Turkey’s chrome ore exports fell by 13 percent month-over-month and 53 percent year-over-year in April 2011. The main driver was lower shipments to China, which saw a 37 percent decrease from April 2010.
  • Imports of unwrought copper and products fell by 14 percent on a month-over-month basis and 40 percent year-over-year basis to 263 kilotons, according to Chinese import data reported this week. The General Administration of Customs reported inbound movements of copper and products down to 262,676 metric tons from 304,299 metric tons in March.
  • The U.S. gasoline demand for May was extremely weak, running lower year-over-year by 391 thousand barrels per day. Total U.S. oil demand was lower on a year-over-year basis by a massive 663,000 barrels per day.

Opportunities

  • According to the Ministry of Industry and Information Technology, China plans to cut 291,000 metric tons of so-called outdated capacity for copper, close 600,000 tons of outdated aluminium capacity, 585,000 tons of lead-making capacity, and 337,000 tons of zinc production capacity this year.
  • The Japanese government reported a likely dip in Japan’s crude steel output in April through June despite the impact of the March earthquake, as higher demand for construction steel will be partially offset by a plunge in demand from the auto sector.
  • At least 11 Chinese provinces are now facing varying degrees of power shortages. This year, power tightness has come well ahead of the usual summer months in July and August.
  • German Chancellor Angela Merkel recently said that Germany will end its reliance on nuclear energy. She said the only question was how long an overlap will be needed before other power sources can fill the gap. Over 22 percent of Germany’s electricity needs are supplied by nuclear energy, 42 percent by coal, 13.6 percent by natural gas and 16.5 percent by renewables.
  • Brazil may become a net importer of aluminum in 2012 as supply lags behind demand fueled by the hosting of the World Cup and the Olympic Games. The country will most likely import 50,000 metric tons of aluminum next year in net terms. Based on that estimate, shipments will rise to 350,000 tons in 2015.

Threats

  • Standard and Poor’s warned this week that “Indonesia’s mining industry is undergoing a regulatory overhaul that is likely to weaken the operating and financial performance of domestic mining companies.” S&P highlighted that existing producers are “grandfathered” but the agency remains concerned that new supplies will be impacted.
  • The Chinese economic data for April showed signs of slowing momentum, with industrial production at 13.4 percent year-over-year from 14.8 percent year-over-year in March. New loan growth was down 5 percent year-over-year to RMB 740 billion. Power generation was weaker, slowing to 10.5 percent year-over-year, largely due to a sharp year-over-year slowdown in hydro generation, which was up only 1.2 percent.
  • Executives from five of the largest oil companies faced questions about tax deductions in U.S. Senate hearings this week.

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Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Saturday, April 16th, 2011

Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Strengths

  • Copper inventories in warehouses monitored by the Shanghai Futures Exchange dropped 4.8 percent.
  • China has exported 42,600 metric tons of refined copper during the first two months of 2011, eight times the amount in the last year.
  • Mexico (up 13 percent year over year) and Argentina (up 20 percent year over year) became the largest contributors to mine supply according to Gold Fields Mineral Services (GFMS), GFMS estimates a rise of 2.5 percent to a record 22.9kt, driven by growth from the primary and Lead/Zinc sector.
  • Seasonally adjusted US auto sales for the month of March remained above 13 million vehicles per year; the sales figures crossed the 13 million vehicle level the second time since the cash for clunkers program that ended on Nov 1, 2009.
  • The National Bureau of Statistics reported this week that China’s crude steel rose 9 percent to 59.42mt in March from a year ago and 9.4 percent higher than February’s 54.3mt. This boosted China’s production to the second-highest level on record amid higher demand from builders.
  • China’s Gross Domestic Product (GDP) increased 9.7 percent in the first quarter, which was higher than expected and despite inflation rising to the highest level in almost three years.

Weaknesses

  • Manufacturing growth, which makes up about 80 percent of India’s industrial production index, was at 3.5 percent for the month, down from 16.1 percent a year ago.
  • A drop of 16 percent to 8.37 million tons for the first quarter iron ore shipments was reported by Fortescue’s due to heavy rains in Australia, the company said it will raise output to 12 million tons in second quarter.
  • China Iron and Steel Association reported a decline in China’s daily crude steel output in the last ten days of March to 1.922 million tonnes per day.
  • After the African Union said Muammar Gaddafi had accepted a roadmap to end the civil war in Libya, as a result Brent crude fell below $126. Furthermore, Brent crude fell sharply to below $122 and U.S. crude dropped by $2 a barrel this week on concern high fuel prices will destroy demand.

Opportunities

  • China’s preliminary March trade data shows a 29 percent month over month increase in copper imports. This could provide more support to this metal, which ended the week at a one month high.
  • Gasoline is crowding out retail sales at rapid pace, its share of total retail sales exploded higher in March to 10.72 percent from an upwardly revised 10.49 percent in February.
  • A Transocean owned rig has drilled the deepest-ever water depth well off the coast of India, drilling in 10,194 feet of water, more than the previous record of 10,011 feet.
  • Diego Hernandez, CEO of state mining giant Codelco, said this week that the global salmon farming industry could need up to 50,000 tonnes of copper a year to build rearing cages thanks to the metal’s anti-bacterial qualities.
  • One of the world’s main suppliers of grain, Argentina, may revive a controversial tax system on grain export. A similar plan to raise taxes on soy exports in 2008 sparked nationwide farmer protests that rattled global commodity markets and hit the popularity of President Cristina Fernandez, who plans to bid for re-election in October.
  • The Association of American Railroad reported this week that Major Class 1 cross-continental railroads hauled almost 200,000 multi-modal shipping containers, which was easily a record for this time of the year, conforming business survey data suggesting the U.S. economy has entered a mini boom as cheap money revs up the recovery.

Threats

  • Although copper prices have almost quadrupled after a two-year rally, largely driven by the belief that China has an insatiable appetite for this metal. Evidence recently surfaced of previously unreported copper stockpiles, which shows signs of about 15 percent of the country’s annual consumption of Copper hasn’t been yet put to use. Chinese buyers are facing a dual problem of higher copper prices and the government’s aggressive move to tighten credit.
  • Eskom, a South African power supplier, has said power supply is likely to remain tight for the next five years; a potential risk for the Platinum Group Metals (PGMs) production.
  • Plans to halt the approval of new aluminium plants in China to tackle serious overcapacity in the industry. The decision would put a hold on investment worth $ 11 billion.
  • Mohammad Ali Khatibi, governor of OPEC, was quoted last week as saying that the global oil market is oversupplied; despite prices that have been pushed up by upheaval in the Middle East.
  • Global 2010-11 cocoa surplus estimates last week have expanded to 184,000 tonnes and prices look set to fall further from the 32-year high hit last month. Cocoa exports from Cameroon, the world’s fifth largest grower, hit 186,305 tonnes by the end of March from the start of the season in August, up 21 percent year over year.

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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)

International Energy Association Global Oil Demand Forecast Trends

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.”

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