Energy and Natural Resources Market Radar (August 13, 2012)

Saturday, August 11th, 2012

Energy and Natural Resources Market Radar (August 13, 2012)

Strengths

• The Global Resources Fund gained an additional star from Morningstar and is now a 4-star overall rated fund as of July, 31 2012. This overall rating is out of 121 natural resources peers.
• Copper futures traded flat on the week as data out of China showed that copper imports rebounded in July from the lowest level in 10 months, to 366,548 metric tons, the General Administration of Customs said on its website. This was 5.9 percent higher than in June, and 20 percent higher than a year ago, customs data compiled by Bloomberg show.
• Soybean imports by China, the world’s biggest buyer, gained for a fifth month even as futures in Chicago climbed to a record.  Arrivals totaled 5.87 million metric tons in July, the General Administration of Customs said on its website today.

Weaknesses

• BHP Billiton Ltd. (BHP) has moved to cut jobs at a regional office in northeastern Australia that handles planning for its metallurgical coal division in an effort to tackle slumping prices for the steelmaking commodity and increased costs.

• Data from China’s customs department shows July iron ore imports falling slightly month-over-month to 57.87 million tons from 58.31 million tons last month.  Analysts at Dahlman Rose & Co. expect further declines in the upcoming months as demand for iron ore cargoes has slowed and Chinese mills begin to reduce steel production, albeit slowly.
• Natural gas futures fell to a four-week low around $2.80 per mmbtu on lowered expectations of demand for air-conditioning as weather forecasters see cooling temperatures next week.

Opportunities

• Barclays highlighted tightness in the oil market due to supply outages which are mounting both among OPEC and non-OPEC producers. Along with technical and structural shortfalls (Brazil’s June production was lower by 4.9 percent), pipeline linked disruptions are also dominating the reason for outages, and in that subset geopolitics remains the primary cause. Barclays noted Yemen’s Maarib pipeline (100 thousand barrels per day) has just resumed flows following an 11-month outage, and it remains vulnerable to a repeat of the series of strikes seen in late 2011. This week has seen an explosion on the Kirkuk-Ceyhan pipeline impacting oil flows up to 300 thousand barrels per day, with repairs expected to take 10 days. This pipeline has come under repeated attacks in the past, but attacks have concentrated on the Iraqi side of the border. Overall, Barclays thinks these outages, along with the reduced availability of Iranian exports, continue to weigh down the supply side, supporting a constructive market balance going into the fourth quarter of 2012.
• Per Reuters, Russia’s ministry of natural resources has drafted a bill that will facilitate the access of companies with foreign capital to mine its gold, platinum group metals (PGM) and diamond reserves, according to documents published on a ministry website. Russia’s gold reserves account for about 10 percent of the global volume; its share in palladium accounts for 24 percent of global reserves.
• The United Nations called for a suspension of U.S. government-mandated ethanol output amid surging corn prices, the Financial Times reported. The U.S. will use about 40 percent of its corn for ethanol production because of the Congress-enacted mandate despite “huge damage” to the crop from the worst drought in at least half a century, the newspaper reported, citing Jose Graziano da Silva, director-general of the UN’s Food & Agriculture Organization. An immediate, temporary suspension of the ethanol mandate would allow more of the crop to be channeled toward food and feed uses, the FT cited Graziano da Silva as saying.
• China’s transition to consumer-led economic growth is forecast to result in growing steel demand, peaking in 2030, as the world’s largest consumer of many commodities moves away from investment-led growth, the chief economist of mining titan Rio Tinto (RIO) said this week.

Threats

• China’s petroleum and chemical industry is expected to grow at a slower pace this year, dragged down by the losses in oil refinery businesses and weakening raw materials demand from export-oriented sectors, an industry federation said Monday.  The industry is facing downward pressure, due to sluggish demand from export-oriented sectors such as textiles and toy manufacturing, as well as rising production costs, a growing tax burden and large-scale losses in the refinery and natural gas sectors, said Li Yongwu, chairman of the China Petroleum and Chemical Industry Federation.

Tags: Bhp Billiton, Bhp Billiton Ltd, Brazil, Cargoes, Coal Division, Copper Futures, Customs Department, General Administration, Global Resources, Market Radar, Metallurgical Coal, Million Metric Tons, Mmbtu, Morningstar, Natural Gas Futures, Northeastern Australia, oil, Opec Producers, Resources Fund, Steel Production, Steelmaking, Weather Forecasters
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Energy and Natural Resources Market Radar (July 16, 2012)

Saturday, July 14th, 2012

Energy and Natural Resources Market Radar (July 16, 2012)

Strengths

• The yield on 10-year U.S. Treasury Notes closed at 1.488 percent on Friday, below the May Consumer Price Index of 1.7 percent, giving investors a negative real return. Comparatively, the Global Resources Fund’s portfolio currently has an average dividend yield of 3.75 percent.
• China’s GDP grew 7.6 percent for the second quarter year-over-year, slightly lower than expected, leading to a gain in copper and crude oil futures toward the end of the week. It seems that the market is expecting a stimulus to come about from China to offset all the pressures of slowing growth. The global financial crisis was the last time China’s demand slowed this much, having a GDP increase of only 6.2 percent during the first quarter of 2009 year-over-year.
• Corn prices hit 52-week highs this week after the U.S. Department of Agriculture estimated a drop in crop yields of 12 percent, the largest month-over-month drop in nearly a decade. Jerry Norton, chair of the Interagency Commodity Estimates Committee, stated that “It’s a very unusual situation.” Only 40 percent of the nation’s corn crop is in good to excellent condition, significantly lower from last year’s 69 percent rating.
• Oil prices (Brent) gained over 4 percent this week to close at a six-week high of $102.76 per barrel as hopes for additional stimulus from the Chinese government boosted sentiment.

Weaknesses

• Statoil was set to shut down operations until the government of Norway intervened on the 16-day oil strike, putting an end to the restriction of supply that was driving up oil prices. The workers were forced back to work and the National Wages Board will attempt to resolve the conflict.
• Although China imports were up year-over-year in June, they increased by only 6.3 percent, less than half of forecasts, contributing further to an already stressed demand with regard to commodities. One factor of the increase in China’s trade surplus can be attributed to the excess stockpiling measures China took before Indonesia’s export tax on metals went into effect in May.
• China’s main coal mining provinces have plans to cut back on output in an effort to alleviate market conditions. According to Platts, a number of Shanxi-based miners have already cut output by 20 to 30 percent since May.
• U.S. net new aluminum orders fell sharply in June, according to data released from the Aluminum Association. Aluminum orders (less can stock) fell 4.4 percent year-over-year in June.

Opportunities

• China Copper Mines has applied to exploit five mineral waste dumps in Zambia which may have a yield of 600 metric tons of copper cathode per year. This project will increase China’s presence in Zambia, Africa’s largest producer of copper.

• Julio Velarde Flores, President of the Central Reserve Bank of Peru, commented this week on the growth prospects of the country. He is optimistic and believes they can exceed the economic growth targets for the year. Peru, the world’s second largest producer of copper, is in the process of seeking investment from wealth funds in Singapore.
• Anglo American has reached a deal with the government of Moquegua to build a $3 billion Quellaveco copper mine, according to Oscar Valdes, Prime Minister of Peru. 220,000 tons of copper per year is estimated to come out of Quellaveco, which is close to one-fifth of Peru’s 2011 total output.

Threats

• By 2016, the Democratic Republic of Congo hopes to triple its current output of copper to 1.5 million, according to Mines Minister Martin Kabwelulu. The Congo has about half of the world’s cobalt reserves, and is aiming to boost output by 65 percent. The government, however, plans on increasing the state’s stake in mining operations which will be used to promote the growth of industry, the country, and its people.
• According to Reuters, Baoshan Iron & Steel, China’s biggest listed steelmaker, will cut August prices of its main products by 4.6 percent as seasonal demand slows. Global Times recently reported that China’s domestic steel prices hit two-year lows during the first week of July. Until we see more quantitative easing in China, we will be unlikely to see any large gains in steel prices in the near future.
• The U.S. Energy Information Administration lowered its 2013 forecast of global oil demand to 730,000 barrels per day. The International Energy Agency however took a contrarian viewpoint with their forecast, estimating that oil demand would rise by one million barrels per day, 1.1 percent higher than in 2012, but still lower than levels seen prior to the financial crisis.

Tags: 52 Week Highs, China Imports, Consumer Price Index, Copper Futures, Corn Crop, Corn Prices, Crop Yields, Crude Oil Futures, Department Of Agriculture, Dividend Yield, Gdp Increase, Global Financial Crisis, Global Resources, Government Of Norway, Market Radar, Oil Strike, Resources Fund, Time China, Treasury Notes, U S Treasury
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Global PMI: The Trend is Your Friend

Tuesday, July 10th, 2012

by Frank Holmes, CEO, CIO, U.S. Global Investors

Manufacturing around the world weakened in June, according to the JP Morgan Global Manufacturing Purchasing Managers’ Index (PMI). Its reading of 48.9 was the lowest in three years and the first dip below 50 since September 2011. The current reading is also below the three-month moving average for the second month in a row. As you can see on the chart, PMI crossed below the three-month in May.

While Europe, China and the U.S. were primarily responsible for the slowed activity, we believe the trend is your friend. In April, global PMI crossed above the three-month moving average, and historically, when a “cross-above” has happened, it’s signaled higher prices for many commodities. Take a look at the chart below which shows the following:

Ninety percent of the time, copper rose 10 percent over the following three months. Eighty-five percent of the time, West Texas Intermediate oil has also increased. Its median three-month change has been an increase of 11 percent.

Materials and energy were also positively affected, with modest results: When the PMI crosses above the three-month average, 70 percent of the time, the S&P 500 Materials Index rose, with a median return of about 3 percent. The S&P 500 Energy Index had a median three-month return of about 5 percent, with an 80 percent chance of the three-month change being positive.

Using history as a guide, this suggests that by the end of July, we could see strength in these commodities and energy and materials stocks. Although volatility and uncertainty rule the markets these days, we believe that the world’s central bankers are taking note of slowed activity and will act if deemed necessary.

The trend is your friend only if your portfolio is “resourceful” enough to benefit. Read the Financial Planning article, which showed how U.S. Global Investors’ Global Resources Fund strengthened a diversified portfolio over the past 10 years. Read the article.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Diversification does not protect an investor from market risks and does not assure a profit.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.

Tags: Amp, Commodities, Copper, Diversified Portfolio, Energy Index, Financial Planning, Frank Holmes, Global Resources, Jp Morgan, Moving Average, Nbsp, Pmi, Purchasing Managers Index, Resources Fund, S Central, Three Months, U S Global Investors, Uncertainty, Volatility, West Texas Intermediate
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China Gives “Green” Light to Car Buyers

Thursday, May 31st, 2012

by Frank Holmes, U.S. Global Investors

China just made it a little more affordable to buy a car. Last week, the government announced a one-year, RMB 26.5 billion subsidy program devoted to energy-efficient products. About RMB 6 billion will be set aside for fuel-efficient cars, and the remaining incentives focus on LED lighting, high-efficiency motors, and air conditioners, refrigerators, washing machines and water heaters that comply with energy saving standards.

The last time China offered subsidies on autos and appliances, in 2009-2010, there was a tremendous increase in year-over-year production. At the peak, auto output jumped 120 percent while the production of appliances rose about 90 percent.

While the total budget for this program is only half of what the government offered in 2009, Morgan Stanley views this move as having a “positive influence on car demand.”

China also lowered gasoline prices lately, providing a “double benefit” for Chinese car buyers.

The subsidies should be welcome in a country that has become quite the car culture. Over the past decade, the auto industry has grown substantially, accelerating from only 2 million vehicles sold in 2000 to an estimated 20 million in 2012. Over the next three years, ISI estimates that another 22 million to 30 million cars will be sold each year.

Deutsche Bank says this government action strikes “a balance between immediate growth needs and long term goals of moving from an export/investment driven economy to a more self-sustaining consumer based economy.”

In Vancouver next month, I’ll be elaborating on the effect these consumer-friendly policies have on global resources at the World Resource Investment Conference. I hope to bring back plenty of investing ideas like this one to share with you.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Tags: Car Culture, Double Benefit, Driven Economy, Energy Efficient Products, Export Investment, Frank Holmes, Fuel Efficient Cars, Gasoline Prices, Global Resources, Government Action, High Efficiency Motors, Investment Conference, Million Cars, Million Vehicles, Morgan Stanley, Resource Investment, Subsidy Program, Time China, U S Global Investors, World Resource
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Energy and Natural Resources Market Radar (April 2, 2012)

Sunday, April 1st, 2012

Energy and Natural Resources Market Radar (April 2, 2012)

Strengths

• Recent data trends support the Global Resources Fund (PSPFX) managers’ long-term investment theme of higher food, agricultural commodity and land prices. After surging over 6 percent on Friday, corn futures closed flat for the week at $6.44 per bushel. The Friday surge came after new government data was released showing a drop in the amount of corn in storage. This raised concerns that corn supplies will remain tight and prices high in the near term.
• Iraq’s central government has approved payment of close to $560 million to oil producers in the autonomous Kurdish region after Kurdish authorities threatened to halt exports due to a lack of payments from Baghdad. Meanwhile, Iraqi oil sales are heading toward a post-war high this month as a new Persian Gulf shipping outlet provides a long-awaited boost to export capacity.
• Indian oil consumption increased by 67 thousand barrels per day (2.1 percent) on a year-over-year basis in February, the second-highest level on record. This was the fifth-straight month where demand totaled more than 3 million barrels per day, highlighting the country’s steady increase in oil consumption. Driven by improving industrial activity and continued penetration of diesel in the automobile sector, diesel sales, which make up over one-third of Indian demand, increased by 8 percent year-over-year to 1.423 million barrels per day, the second-highest level ever.
• U.S. crude consumption is holding up at around 14.55 million barrels per day, a 3 percent year-over-year rise so far this year. Despite high gasoline prices, growth is expected to rise by 1.9 percent quarter-over-quarter and 5 percent year-over-year.

Weaknesses

• The supply-side of the aluminum market has experienced a sharp bifurcating trend between China and the rest of the world so far in 2012 following several capacity cutbacks in North America and Europe at the turn of the year. Data from the International Aluminum Institute (IAI) showed that global aluminum output excluding China fell to 68,900 tons in February, the lowest level since December 2010 and the first year-over-year decline since the beginning of that year.
• Barclay’s Commodities Research visited China last week and met with a range of copper market fabricators, smelters and physical traders. Their key takeaway was that spot demand for copper is weak and improvement in the second quarter may be tepid. Sentiment among copper fabricators is negative because orders have been slow to improve. Inventories of copper cathodes are low, but inventories of finished product are higher than usual for this time of year.

Opportunities

• The government of Tanzania plans to invite oil operators to bid for 16 new offshore blocks under a new licensing round scheduled for September 2012.
• There are a number of analysts who now believe soybeans can increase to $14-$15 per bushel by late May, due to South America’s harvest progress and result. This drove Oil World to refine its forecast, saying that there was a “high probability that soybeans will exceed $14 per bushel for the July 2012 contract.” The comments came in a report that forecasted world soybean inventories to plunge 20 percent to 60.6 million tons in 2011-12. This is a much steeper drop off than the 12.5 percent tumble expected by the U.S. Department of Agriculture.
• Despite price declines, Indonesia’s coal production is expected to rise up to 5 percent from a year earlier to 390 million tons in 2012. “This year we estimate that production will reach 380-390 million tons even though prices have gone down,” said Supriatna Suhala, deputy chairman and executive director of the APBI-Indonesia Coal Mining Association. Indonesia, the world’s top thermal coal exporter, produced 370 million tons of coal in 2011. Suhala also forecasted that Indonesia’s domestic coal consumption would jump 15 percent to 75 million tons in 2012.

Threats

• On Tuesday, the Obama administration announced long-awaited rules to limit carbon-dioxide emissions from new power plants. The rules will effectively block the construction of new coal-burning plants and make natural gas even more attractive as a fuel for generating electricity. The rules, which have been in the works since late 2009, will add more stress to the beleaguered coal-mining sector while encouraging development of renewable energy. The rules will also certainly add to Republican complaints of regulatory overreach by the Obama administration ahead of the November elections. The rules face serious opposition in Congress and the legal underpinnings are already being challenged in court.
• The proposed Volcker rule crackdown on trading and investing by banks could cause gasoline, electricity and natural gas prices to rise, according to a new report from IHS. With the report, HIS is seeking to gauge the rule’s impact on energy companies and markets, including oil refineries, natural gas producers, and electricity providers. The report’s authors said large banks play a key role in helping a variety of energy companies’ hedge risk and engage in timely trades on commodity exchanges. According to the report, any reduction in the banks’ ability to play this role because of the Volcker rule will cause the cost of doing business to rise and that will lead to higher energy prices for consumers.
• Four weeks before the country’s presidential election, France is in talks with the U.S. and Britain on a possible release of strategic oil stocks to push fuel prices lower.
• Barclay’s Commodities Research also noted that although imports of copper are likely to remain strong in March and possibly April, they will likely trail off until later in the year. Overall, they believe that short-term Chinese demand is likely to disappoint before beginning on a recovery trajectory later in the second quarter. They also believe that imports will weaken until bonded stocks are run down, possibly in the third quarter of this year.

Tags: agricultural, Agricultural Commodity, Agriculture, Automobile Sector, Bushel, Commodities, Commodity, Corn Futures, Data Trends, Diesel Sales, Gasoline Prices, Global Resources, Government Data, India, Indian Oil, Iraqi Oil Sales, Kurdish Region, Long Term Investment, Market Radar, Mining, Oil Consumption, Oil Producers, Persian Gulf, Resources Fund, S Central, Shipping Outlet
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Chart of the Week: The World’s Infrastructure Plans

Thursday, March 15th, 2012

Demand for access to basic needs, an emerging middle class and a never-ending use of global resources—these are the primary drivers of major infrastructure projects over the next several years, says GE.

In its Investor Meeting last week, the firm highlighted a few macro slides on world growth. One slide pins major global infrastructure plans totaling $4 trillion over the next 2 to 20 years.

Emerging markets across Africa, Asia, the Middle East and South America are overwhelmingly the ones pulling out their checkbooks. A number of projects are expected in Brazil, including the PAC 2 investment program totaling $872 billion, Petrobras Oil & Gas project of $225 billion, and the infrastructure spending for the World Cup and Olympics expected to cost $668 billion. Brazil’s PAC 2 will mostly be spent on energy and the remainder on subsidized housing, urbanization, sanitation and electricity distribution, says Financial Times.

India and Russia also have tremendous infrastructure plans, as each country is expected to be a half of a trillion dollars. China’s 12th Five-Year Plan is expected to spend $840 billion on the power industry and another $180 billion on health care.

In GE’s presentation, the president & CEO of Global Growth & Operations, John Rice, says many of these countries’ governments face extraordinary pressure “to increase standards of living and reduce the wealth disparity.” Of the world’s population of 7 billion, GE says 1.5 billion have no access to basic needs, such as health care, electricity and water. In addition, in the next 20 years, another 3 billion people will be added to the middle class, according to GE. That equates to 150 million people each year who will have the means and “the same kind of demands in terms of basic living conditions and infrastructure” available in the U.S., says Rice.

This trend is what I refer to as the American Dream Trade. When the boomers were babies, President Dwight D. Eisenhower signed the 1956 Federal-Aid Highway Act. The “great road program” was said to be the most intense road construction period in U.S. history, altering where Americans chose to live, vacation and work. A 62-day trip in 1919 from Washington D.C. to San Francisco was reduced to two days due to the U.S. interstate system. This helped sustain a more than tenfold increase in the U.S. GDP, according to the U.S. Department of Transportation.

A pursuit of the American Dream from the U.S.’s emerging middle class led to the success of many well-known U.S. companies. Restaurants including McDonald’s and Dairy Queen and automobile manufacturers Ford and GM prospered following this infrastructure spend.

The infrastructure plans taking place across emerging markets emulate a 1950s America. As these governments help their residents pursue the American Dream of better homes, health care and quality of life, I believe the companies with a strong footprint in these growing markets stand to benefit.

See GE’s presentation slideshow here.

Tags: Africa Asia, American Dream, Boomers, Brazil, Checkbooks, Electricity Distribution, Emerging Markets, Financial Times, Five Year Plan, Global Growth, Global Infrastructure, Global Resources, Infrastructure Projects, Investment Program, John Rice, Middle Class, Russia, Sanitation, Slide Pins, Subsidized Housing, urbanization, Wealth Disparity
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The Apple Doesn’t Fall Far From the Global Resources Tree

Thursday, March 8th, 2012

After Apple reached $500 billion in market capitalization, it was inducted into a very elite club of businesses that have reached this size. Only Cisco, ExxonMobil, General Electric, Intel and Microsoft have made it to the $500 billion mark, says CNNMoney.

Apple’s rise in market cap has been driven by spectacular stock performance. Since October, the tech company’s stock has increased nearly 40 percent, making it the top driver of the S&P 500 rally. This increase caught the attention of many analysts, including Thomas Lee from J.P.Morgan, who declared that the moonshot rise of Apple’s stock has made the company a “sector unto itself.” At a market cap of just under $500 billion, Apple represents 3.7 percent of the S&P 500 Index. Lee says the “sheer magnitude” of the company’s weighting means that…

• Apple is the largest cyclical stock in the S&P 500
• Among 65 industries, Apple would be the 6th largest industry
• Among 10 sectors, Apple would be the 8th largest sector
• Apple’s size makes it larger than the Materials, Utilities and Telecom sectors

While it’s a significant driver of the S&P 500’s performance, the business doesn’t operate in a vacuum. Rather, Apple is a chip off the ol’ building blocks of global resources, namely, utilities, materials and energy companies.

In the U.S. alone, Apple relies on wireless networks AT&T, Sprint and Verizon to distribute millions of iPhones to their customers. After the exclusivity agreement between AT&T and Apple ended, Verizon’s market share exploded. Last fall, Sprint boldly agreed to purchase 30 million Apple phones over the next four years, which provides an indication of how optimistic the company is about its iPhone sales.

In China, China Unicom was formerly the country’s only official iPhone carrier, but an additional player has just entered the field. The third-largest telecommunications company in the country, China Telecom, just launched the iPhone, and by all reports, “enthusiasm is high and competition appears good for the market,” says Forbes.

The Wall Street Journal surmised this morning that the new iPad may boost Verizon if Apple’s latest product contains a wireless broadband technology that depends on a monthly subscription plan. The newspaper writes that in 2011, “70 percent of the tablets that were purchased around the world featured Wi-Fi-only connectivity.” This iPad may encourage consumers and businesses to fork over a monthly payment in exchange for a speedy wireless connection.

Beyond communications and wireless businesses, materials companies worldwide benefit from supplying the glass, batteries, wiring and metals for Apple’s products. The New York Times points out that 700,000 people outside the U.S. work for Apple’s contractors, engineering, building and assembling its products. Semiconductors in the iPhone 4 and 4S are manufactured in Austin, Texas; the iPhone’s glass is made in a Corning factory in Kentucky.

In addition, energy companies benefit from keeping millions of iPhones, iPads and iPods charged.

At its live event, Apple said that there are 550,000 mobile apps available now, with 25 billion downloads in over four years. Apps provide opportunity for hundreds of thousands of companies across all sectors. Our iPad and iPhone apps give our investors an interactive way to access and read this blog, our Investor Alert and slideshows.

With rising wealth among emerging markets, we expect millions of new customers will be lining up to purchase their first Apple products over the coming years, while consumers in the developed world seek to upgrade their iPhones, iPads and iPods. We believe this demand will fuel not only Apple, but also its building blocks.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The following securities mentioned were held by one or more of U.S. Global Investors Fund as of 12/31/11: AT&T Inc, Apple, Exxon Mobil Corp, General Electric, Intel Corp, Verizon Communications.

Tags: China China, China Telecom, China Unicom, Cnnmoney, Country China, Elite Club, Energy Companies, Exclusivity Agreement, Exxonmobil, Global Resources, Iphone, Iphones, J P Morgan, Market Capitalization, S Market, Sheer Magnitude, Stock Performance, Telecom Sectors, Telecommunications Company, Thomas Lee
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Energy and Natural Resources Market Radar (January 16, 2012)

Saturday, January 14th, 2012

Energy and Natural Resources Market Radar (January 16, 2012)

Strengths

• Desjardins highlighted that Chinese December base metal import data is showing that unwrought copper imports reached 508.9 thousand metric tons, up 12.6 percent month-over-month and 47.7 percent year-over-year. Iron ore imports of 64.1 million metric tons were down 0.2 percent month-over-month while up 10.3 percent year-over-year.
• The latest SteelBenchmarker assessment by World Steel Dynamics shows a continuation of the upward trend in U.S. steel prices. The U.S. hot-rolled coil (HRC) assessment topped $800 per ton for the first time since July and scrap prices hit $466 per ton of shredded material, the highest level since August 2008.
• Reuters noted that OPEC’s crude oil production was more than 30 million barrels per day in December 2011, the highest volume since October 2008.
• Preliminary shipping data shows that Brazilian shipments were up 5.6 percent year-over-year. Shipments to China exceeded the 200 million tons per annum mark for the first time last year and iron ore exports reached an all-time high run rate in December.

Weaknesses

• The Global Resources Fund (PSPFX) underperformed its benchmark by a small amount over the last week due to being underweight large capitalization basic materials stocks and being overweight U.S. exploration and production stocks with natural gas exposure.
• Natural gas fell 14 percent this week to $2.64 per British thermal unit (Btu), a decade low. Supply growth in North America from rapid oil and gas shale basin development has created a glut of natural gas that will require a combination of increased industrial and power generation demand as well as a reduction in natural gas well drilling to balance the market.
• Deutsche Bank reported that the dry bulk index has fallen sharply in the beginning of 2012 while iron ore prices remain relatively supported. Deutsch Bank believes the decline in shipping rates is a function of slowing demand from Chinese steel production ahead of its New Year and lower shipments from Australia and northern Brazil due to rainy weather. China steel production has declined for six consecutive months. Deutsche Bank expects spot iron ore and freight rates to face ongoing headwinds in the first and second quarters of 2012. However, an end to the rains and an improvement in global growth during the second half of 2012 could lead to subsequent strength.
• China’s import growth fell to a two-year low in December, underscoring a slowdown in the fastest-growing major economy that deepens risks for the global outlook.
• The Central Dispatch Department of the Fuel and Energy Complex said that Russia’s crude oil exports fell by 3.9 percent year-over-year to 212 million tons in 2011.

Opportunities

• BCA research showed that equity multiples now discount a severe global growth slowdown at a time when mining stocks still offer leverage to the bullish China income convergence story. The unfolding recession in Europe and property slowdown in China have crushed mining share prices.
• Macquarie reports that Vale has now declared force majeure on certain iron ore deliveries, accounting for around 20 percent of January output. They emphasized that this now serves to indicate that the seaborne iron ore market will become fundamentally tighter during the quarter, requiring both destocking in China and a reincentivization of Chinese domestic output through higher prices.
• Deutsche Bank noted that oil production in the state of North Dakota climbed 42 percent (year-over-year) in November to 510,000 barrels per day. Success in developing tight oil plays across the country has created a realistic prospect that U.S. net oil imports as much as a percentage of total usage could fall significantly further. The figure has already fallen from 65 percent in 2005 to 47 percent in 2011.
• The U.S. Energy Information Administration (EIA) released its first Short Term Energy Outlook for 2012, in which the agency revised global oil demand downward by 140,000 barrels per day in 2012. This brings the EIA’s annual growth rate in-line with Barclays’ forecast at 1.27 million barrels per day. However, the key feature of the report was the large downgrade to non-OPEC supply for both 2011 and 2012. Non-OPEC supply growth for 2011 was reduced by a massive 310,000 barrels per day to just 90,000 barrels per day.

Threats

• Italy faces a “significant chance” of a downgrade by Fitch Ratings, which is reviewing all European sovereigns and will make a decision by the end of the month.
• Workers in Nigeria began a national strike, threatening to shut ports and disrupt oil production and exports. Workers are striking in reaction to the government’s decision to lift fuel subsidies, more than doubling gasoline prices. The strike makes Nigeria the third OPEC nation with an ongoing supply threat.
• Vale, the world’s largest iron ore exporter, reported that it had to halt some iron ore shipments from Brazil due to heavy rainfall that has killed dozens of people. Due to the rains that have affected its operations in Brazil, the miner estimates it will lose approximately 2 million tons of iron ore shipments, almost 1 percent of its annual output.

Tags: Basic Materials, Basin Development, British Thermal Unit, Crude Oil Production, Deutsch Bank, Exploration And Production, Global Resources, Hot Rolled Coil, Import Data, Iron Ore Exports, Iron Ore Prices, Market Radar, Million Metric Tons, Natural Gas Exposure, Resources Fund, Reuters, Shipping Data, Steel Dynamics, Steel Prices, World Steel Dynamics
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Energy and Natural Resources Market Radar (January 1, 2012)

Sunday, January 1st, 2012

Energy and Natural Resources Market Radar (January 1, 2012)

Strengths

• The Global Resources Fund beat its benchmark this week primarily due to stock selection across various industries.  Also, the fund was aided by better relative performance of junior exploration stocks versus senior resources stocks.
• Oil climbed 8.7 percent this year, set for a third annual gain, on speculation that escalating tension in the Middle East may disrupt supplies as a recovery in the U.S. economy bolters demand. (Bloomberg)
• First Quantum’s workers at their Mauritania mine ended a week-long strike after receiving water and electricity allowances and yearly bonuses.  Water and electricity allowances are now the equivalent of $171 and $257, while annual bonuses will be as much as six months’ salary.
• Macquarie noted that iron ore is having a slight rally into year end, boosted by interest from Chinese traders ahead of an expected steel production push into Chinese New Year. The Steel Index 62%Fe reference price CFR China is now $138.4 per ton, over 5 percent above its mid-December lows. The annual average 2011 spot iron ore price is set to come in around $168 per ton for 62 percent material, up 14 percent from 2010’s record.

Weaknesses

• Copper finished down 3 cents per pound for the week to close the year at $3.43 per pound (COMEX).  Copper fell $1 per pound down 23 percent from its starting point of $4.45 per pound last year.
• The LMEX index of six industrial metals contracted 23 percent this year, led by declines in tin, nickel and zinc.  Spot silver is 9.3 percent lower in 2011, set for its first annual decline in three years.  Palladium is poised to fall 21 percent, and platinum has lost 22 percent.
• Natural gas futures dropped below $3 per British thermal units for the first time in more than two years as mild weather and rising production contribute to a growing U.S. stockpile surplus.
• Bloomberg reported that Brazil’s oil regulator fined Chevron for the third time for not properly managing an offshore oil field that leaked last month.  The Agencia Nacional do Petroleo said on its website today that Chevron didn’t comply with the development plan for the Frade oil field off the coast of Brazil.  The amount of the fine has yet to be finalized, but the first two fines may be as much as the equivalent of $26 million.

Opportunities

• Bloomberg reported that Goldman Sachs said in a December 1 report that the world is likely to avoid a recession and maintained its overweight allocation to commodities, predicting a 15 percent return in the next 12 months.
• Chinese coal stocks at IPPs continue to drop in terms of days of use according to data from China Coal Resource.  A Vietnam state-owned coal exporter, Vinacomin, has said it will also cut its coal exports from the following year to 13.3 million tons from 16.8 million tons this year, as domestic demand increases. This just points to an opportunity for coal imports into China to pick up.
• The Baker Hughes U.S. rig count, a key indicator of activity in the oil and gas sector, hit a 27-year seasonal high last week. At 2008 rigs, this is up 17.5 percent year-over-year and indicates ongoing strong demand from the U.S. energy sector for high performance commodity materials.

Threats

• Bloomberg highlighted that the weakest growth in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for the largest vessels will plunge to the lowest level since 2002.  It has been estimated that capsizes, each hauling about 160,000 metric tons of ore, will earn an average of $15,000 a day next year, about a 4 percent decrease than in 2011, implying losses for ship owners and investors in their companies.
• Hitachi Construction Machinery said Chinese demand for excavators will decline in the fist half of 2012 as monetary tightening slows construction projects. The sales downturn in China will continue after the Lunar New Year next month, CEO Michijiro Kikawa said, adding that he had expected Chinese demand to come back sooner. Kikawa expects industry-wide sales of excavators in China to decrease by 30 percent in the year to March 31, compared with a forecast of a 20 percent decline two months ago. China will probably see no growth until June or July, Kikawa said.

Tags: Chinese New Year, Chinese Traders, Comex Copper, Exploration Stocks, Global Resources, Industrial Metals, Iron Ore Price, Junior Exploration, Lost 22, Market Radar, Mild Weather, Natural Gas Futures, Reference Price, Relative Performance, Resources Fund, Senior Resources, Spot Silver, Steel Index, Steel Production, Stock Selection
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China’s Global Grab for Resources

Wednesday, December 14th, 2011

With such a grab for global resources in China, we are often asked if there are enough to go around and how prices are affected. These are precisely the questions that Daniel Gross and Aaron Task from Yahoo’s Daily Ticker asked Evan Smith, co-portfolio manager of the Global Resources Fund (PSPFX).

Commodity prices tend to move in tandem with Chinese demand, says Evan. Over the past decade or so, he says the country routinely accounts for a third, a half or as much as 70 percent of all demand for any particular commodity.

When determining China’s future growth, Evan points to many indicators that our investment team reviews: automobile sales, exports from a certain country and the Baltic Dry Freight Index, to name a few. Although China’s rate of growth may slow, Evan says, “From a commodities perspective, you’re at such a large level of demand that the growth rate may go from 10 percent to 5 percent, but the absolute volume in demand each year is actually increasing each year off a larger base.”

Evan also discusses the country’s emergence in global gold consumption and production.

Tags: Automobile Sales, Baltic Dry Freight Index, Chinese Demand, Commodities, Commodity Future, Commodity Prices, Daniel Gross, Decade, Dry Freight, Emergence, Evan Smith, Global Resources, Gold Consumption, Grab, Investment Team, Portfolio Manager, Resources Fund, Smith Co, Tandem, Yahoo Ticker
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