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
Posted in Markets | Comments Off

Natural Gas Tightens on Japan’s Nuke Shutdown and U.S. Utilities Switch from Coal (May 28, 2012)

Sunday, May 27th, 2012

Energy and Natural Resources Market Radar (May 28, 2012)

Strengths

• Global mining equities recovered from last week’s sell off with an average gain of 6.5 percent in the NYSE Arca Gold BUGS (HUI) and S&P/TSX Metals & Mining indices.
• The global LNG market has tightened considerably since Japan’s nuclear industry was shut down in 2011 after a serious nuclear power accident.  Japan’s LNG imports grew 14.9 percent to 6.91 million tons in April from a year earlier according to the finance ministry.

Will Truckers Ditch Diesel?

Weaknesses

• Natural gas futures closed lower this week after a 6-week rally.  Weekly inventory data from the Department of Energy knocked down prompt futures by about 18 cents per mmbtu from the prior week to close under $2.58 per mmbtu.
• Steel output in China declined in April from a record as buyers sought to defer imports of raw materials such as iron ore and coking coal, Bloomberg reported. China’s crude-steel production declined 1.6 percent to 60.57 million metric tons after soaring to a record 61.58 million tons in March, the World Steel Association said.

Opportunities

• The shale gas boom in the U.S. has led to a big drop in the country’s carbon emissions, as power generators switch from coal to cheap gas.  According to the International Energy Agency, U.S. energy-related emissions of carbon dioxide, the main greenhouse gas fell by 450 million tons over the past five years.
• The Financial Times reported that China is moving to accelerate investment in major infrastructure projects. The official China Securities Journal said that the government was stepping up approvals for infrastructure projects. “Some projects that were to have started in the second half of the year are being shifted to the first half, with the allocation of central government funding being brought forward,” the newspaper quoted a “related person” as saying. “There is a clear acceleration of the allocation of investment from the government budget this year compared with the last two years,” it said.
• Xstrata expects copper demand in China to recover in the second half of 2012 as it takes steps to boost its economy, Bloomberg reports. “The commentary from China that they’re going to look to re-stimulate the economy in some areas is positive,” Bloomberg reported citing Charlie Sartain, CEO of the company’s copper unit. Demand for white goods and household appliances, as well as continuing year-over-year growth in China’s power generation sector, will benefit from China’s stimulus efforts, Sartain said. “We see those parts of the economy in China as still pretty robust,” he said. “This decade we are going to see generally tight conditions in the copper market” he said, adding that higher costs related to new sources of production will help to keep copper prices at historically elevated levels in the future.

Threats

• U.S. manufacturers have attacked JP Morgan Chase’s plans to launch an exchange traded fund backed by physical copper, arguing that the ETF would drive up the cost of the metal and be detrimental to the global economy.
• China stainless steel demand growth this year will probably be the slowest since 2001, said Lu Ping, assistant general manager of Baosteel Stainless Steel. Demand in China may only rise 3 percent to 5 percent to about 10 million metric tons as a result of the slowdown in economic growth, Lu said. Output of stainless steel in China is likely to grow 3 percent to 5 percent to 12 million to 12.5 million tons.

Tags: Carbon Emissions, China Securities, Coking Coal, Crude Steel Production, ETF, ETFs, Gas Boom, Gold Bugs, Greenhouse Gas, Infrastructure Projects, International Energy Agency, Lng Market, Market Radar, Million Metric Tons, Natural Gas Futures, Nuclear Power Accident, Nyse Arca, Power Generators, Steel Association, Steel Output, U S Energy, World Steel
Posted in Markets | Comments Off

Energy and Natural Resources Market Radar (March 19, 2012)

Saturday, March 17th, 2012

Energy and Natural Resources Market Radar (March 19, 2012)

Strengths

• U.S. exports of steel products reached 1.14m tons in January, the highest level in the last 14 months, according to the U.S. Census Bureau.
• European refineries increased imports of crude from OPEC members last year to make up for the loss of Libyan barrels, the IEA said. European refiners had turned to OPEC members Saudi Arabia, Nigeria, Iraq and Angola to fill the gap. European members had imported more than 1.1 million barrels a day of Libya’s total 1.3 million barrels a day of crude exports before the civil war broke out.
• Saudi Arabia’s Oil Minister, Ali al-Naimi, said this week that the country, the world’s largest crude exporter, can make up for any shortage in global supply, seeking to assuage markets in which prices have jumped on concerns over flow disruptions.
• Comments from oil tanker company Frontline this week indicate the tanker market is picking up markedly. Demand in the crisis-hit tanker market has picked up considerably in recent weeks helped by surprisingly high activity from ships transporting oil to China. The company says it sees an incredible amount of fixtures from the Persian Gulf at the moment with rates between $25,000 – $30,000 per day and those rates should hold, given Chinese oil demand.

Weaknesses

• Gold fell to a 10-week low this week as investors shed haven assets.
• Natural gas futures hit a fresh 10-year low price of $2.27 per mmbtu this week on weak heating demand and surplus supply.
• Environmental and health groups are calling for tougher U.S. regulation of hydraulic fracturing for natural gas, turning down a one-time donor to their causes, Chesapeake Energy Corp. The Sierra Club, the largest U.S. environmental group, is rethinking early support of natural-gas development after activists and scientists linked the drilling to tainted water and increased air emissions. The group turned down $30 million from Chesapeake after Executive Director Micheal Brune took it over in 2010.
• European imports of containerized goods fell 5.2 percent in January, according to data from Container Trade Statistics.

Opportunities

• Copper will average $4.10 per pound in 2012, while prices are unlikely to average less than $3.80 per pound in the next five years, according to a mining-studies group in Chile. Copper supply will fall short of demand by 200,000 metric tons this year, while the deficit in 2013 will be smaller, said Juan Carlos Guajardo, Executive Director of the Center for Copper and Mining Studies.
• India coking coal imports have been said to jump 22 percent this year, the Steel Authority of India Chairman CS Verma said at the Coaltrans India conference in New Delhi. India is critically short of coking coal, he added. He further said pricing pressures exist in the coking coal market because a few companies control supplies and the shift to monthly contracts for coking coal will increase volatility.
• Headlines in the agricultural sector are continuing to remain positive for plays within the space. A survey recently showed that palm oil, used in everything from candy bars to instant noodles, will advance 3.4 percent to the highest in more than a year by June as cooking-oil supplies drop to the lowest in more than three decades. Additionally, wheat and flour imports by Indonesia, Asia’s biggest buyer, may also gain at least 6 percent this year as rising incomes boost food demand in the world’s fourth most populous country.
• India’s steel production is set to rise to 125 million tons in 3-4 years from 75 million tons now, said the executive director at Steel Authority of India Ltd.

Threats

• According to the International Energy Agency, OPEC’s crude oil production rose for a fifth month to the highest in more than three years as Saudi Arabia and Libya boosted supply. OPEC’s 12 members produced 31.42 million barrels a day of crude last month, the most since October 2008, the agency said this week. This could create downward pressure on the price for crude oil.
• Iran’s oil exports will decline by between 800,000 and 1 million barrels a day from the middle of this year as sanctions hinder purchases worldwide, the International Energy Agency said this week. While there currently may be no physical supply disruption, European insurance companies have already announced the suspension of coverage for tankers calling at Iranian ports. Iranian output fell 1.5 percent to 3.38 million barrels a day in February, the lowest in at least three years.
• Crude oil prices dipped briefly this week on the news that President Obama and British Prime Minister Cameron had agreed to authorize releases of their countries’ strategic crude reserves.

Tags: agricultural, Air Emissions, Chesapeake Energy, Chesapeake Energy Corp, Chinese Oil, Crude Exports, European Members, Execu, Hydraulic Fracturing, Market Radar, naimi, Natural Gas Futures, Opec Members, Persian Gulf, Sierra Club, Surplus Supply, Tanker Company, Tanker Market, Time Donor, U S Census, U S Census Bureau
Posted in Markets | Comments Off

Precisely Watson?! (Saut)

Tuesday, January 31st, 2012

“Precisely Watson?”

by Jeffrey Saut, Chief Equity Strategist, Raymond James

January 30, 2012

Sherlock Holmes: “And, then there was the event of the dog barking in the night.”

Dr. Watson: “But Holmes, there was no dog barking in the night!”

Sherlock Homes: “Precisely Watson!”

According to Wikipedia (as paraphrased by me):

It is precisely on this distinction that Holmes bases his insight. When the inspector asks, “Is there any point to which you would wish to draw my attention? Holmes responds, “To the curious incident of the dog in the night.” But, protests the inspector, “The dog did nothing in the night.” To which Holmes delivers the punch line, “That was the curious incident.”

For Holmes, the absence of barking is the turning point of the case: the dog must have known the intruder. Otherwise, he would have made a fuss. For us, the absence of barking is something that is all too easy to forget. We don’t even dismiss things that aren’t there; we don’t remark on them to begin with. But often, they are just as telling and just as important – and would make just as much difference to our decisions – as their present counterparts. How asking what isn’t there can help us make better decisions.

And, last week there was indeed a “dog barking in the night” as Chesapeake (CHK/$22.05/Market Perform) announced it was shutting down numerous natural gas wells due to low gas prices, a signpost coincident with many “bottoms.” On that announcement natural gas futures went from $2.23 per MMcf to $2.75 into last Friday’s closing price. That’s a 23% upside reversal and likely sets the low water mark for natural gas. While our Houston-based research team doesn’t believe it, and they have been more right than me, I think the “lows” for natural gas are “in.” Certainly, major corporations think there is a future for natural gas given the buyout activity over the past few years in the natural gas space. Names for your consideration that are favorably rated by our fundamental analysts include: Anadarko Petroleum (APC/$79.32/Strong Buy); EnCana (ECA/$19.60/Outperform); Williams Companies (WMB/$28.55/Outperform); and Devon Energy (DVN/$65.01/Outperform).

Speaking to Devon, I have mentioned this company before, sparked by my friends at the “must have” Bespoke Investment Group. To wit, January 17th’s missive stated:

“In business school they teach you that investing is all about earnings, and while I think fear, hope, and greed play a role in the investing equation, over the long term earnings indeed play the dominant role. Realizing this, the good folks at Bespoke have assembled a list of companies that have consistently reported the strongest earnings since March 2009 that report between now and February 24th. Names favorably rated by our fundamental analysts making said list include: Citrix Systems (CTXS/$65.14/Outperform); Devon Energy (DVN/$65.01/Outperform); and Tempur-Pedic (TPX/$70.09/Strong Buy).”

Most recently, our exploration and production analyst Andrew Coleman had this to say about Devon:

“On January 5th, we upgraded Devon to a Strong Buy from Outperform. Earlier this week, Devon announced a $2.2 billion joint venture with the Sinopec International Petroleum Exploration & Production Corporation (SIPC). The deal gives SIPC a 33% working interest in Devon’s 1.2 million acres across five New Venture plays (e.g. Niobrara, Ohio Utica, and Tuscaloosa Marine shales as well as the Mississippi Lime and the Michigan basin). We value the transaction at $5,500 per acre overall. As a result of the deal, we are raising our production growth expectations for 2012 from 7.5% to 10% (vs. peers at 16%).”

Interestingly, the reciprocal to my natural gas “dog barking in the night” theme is Apple (AAPL/$447.28), which had a “blow out” earnings quarter last week. Indeed, Apple reported 1Q12 sales of $46.33 billion and profits of $13.1 billion. That was the second highest quarterly profit for any company ever! Such metrics lifted the company’s cash hoard to $97.6 billion, making its cash position larger than the market capitalization of 448 of the companies in the S&P 500. Apple sold 37 million iPhones in the quarter for a y/y growth rate of 128%; and, has now sold a total of 315 million iPhones, iPads, and iPod Touch devices. On the earnings release Apple’s shares leapt from $420.41 (last Tuesday’s close) to Wednesday’s opening price of $454.44, making Apple the world’s most valuable company ($417 billion) by exceeding Exxon’s (XOM/$85.83/Market Perform) market capitalization of $413 billion. Clearly, an astounding quarterly report that caused one old Wall Street wag to exclaim, “When the news can’t get any better I sell.”

Turning to the stock market, in last week’s report I wrote:

“The recent rally has not been accompanied by a noticeable increase in Buying Demand as measured by Lowry’s Buying Power Index. Rather the rally has occurred more from a reduction in Selling, which is reflected in Lowry’s Selling Pressure Index. Then too, the percentage of stocks above their respective 10-day moving averages (DMAs) has failed to confirm the upside and the New High list is not expanding. In fact, 40% of my short-term indicators are now bearish and none are bullish. Meanwhile, the NYSE McClellan Oscillator is overbought, the stock market does not have much internal energy left for a big rally, the S&P 500 is three standard deviations above its 20-DMA, the Volatility Index is telegraphing too much complacency, and we have negative seasonality for the next few weeks. Nevertheless, I continue think it is a mistake to get too bearish because I believe any pullback in the various indices will be contained.”

The conclusion to last Monday’s missive was to look for a short-term trading peak followed by either a pause or a correction that could pull the S&P 500 (SPX/1316.33) down to the 1280 – 1290 level. And, the week turned out to be just a “pause” saved by a rally attempt on the more dovish than expected FOMC statement. While the pause didn’t really correct the overbought nature of the NYSE McClellan Oscillator (see the chart on page 3), it has somewhat rebuilt the stock market’s internal energy. It should be noted the D-J Industrial Average (INDU/12660.46) edged above its July 2011 closing high on an intraday basis last Thursday, as well as that the new rally highs in the INDU and SPX have been confirmed by new rally highs in the Cumulative Net Points and Cumulative Volume Indices. Meanwhile, the NYSE Advance/Decline Line continues to move to new all-time highs. Interestingly, given the year-to-date strength, there have been no 90% Upside Days, a reflection of the aforementioned reduced volatility. Also of interest is that unlike prior quarters fundamental analysts are not raising their earnings estimates as earnings season is underway. This could be because the current earnings “beat rate” is not nearly as robust as past quarters.

To be sure, I have repeatedly commented that earnings comparisons were going to get more difficult because the trailing four quarter’s earnings reports have been so strong; and, that’s precisely what is happening. For example, with 180 of the S&P 500 companies reporting, there has been 1.81 upside earnings surprises for each disappointment versus a more normal ratio of 3:1. Accordingly, it makes sense to screen for companies producing “Triple Plays” – that would be companies beating earnings and revenue estimates and also raising forward earnings guidance. Three names from our research universe that qualify as Triple Plays and are favorably rated by our fundamental analysts for your consideration, include: Arctic Cat (ACAT/$30.65/Strong Buy); Caterpillar (CAT/$111.28/Outperform); and Xilinx (XLNX/$35.99/Outperform).

The call for this week: Well, I am traveling the balance of this week to see institutional accounts, speak at an Investment Banking Conference, and present at a handful of retail seminars. Consequently, there will be no verbal strategy comments for the rest of the week. Therefore, I will leave you with these thoughts. The January Barometer has sounded the “all clear” signal with a monthly gain for the INDU of 3.36% and a 4.67% rise in the SPX. History suggests double-digit returns for the rest of the year with positive returns occurring more than 80% of the time. Two sectors have been the main drivers of this January Jump, namely Consumer Discretionary and Technology. Unsurprisingly, the Consumer Discretionary, Technology, Industrial, and the Materials sectors are all beating earnings estimates at the highest “beat rate,” while Consumer Staples, Energy, Financials, and Healthcare are not. While I remain somewhat timid on a short-term trading basis, I continue to believe the year of the Water Dragon will bestow the five Chinese blessings of harmony, virtue, riches, fulfillment, and longevity. That adds even more weight to my growing belief that 2012 will be about breakthroughs, not disasters.

P.S. – As an aside, maybe participants should consider that Warren Buffett is not paying too little a percent of income tax, but rather his secretary is paying too high a percent!

Click here to enlarge

Copyright © Raymond James

Tags: Chk, Curious Incident Of The Dog, Curious Incident Of The Dog In The Night, Dr Watson, Gas Prices, Gas Space, jeffrey saut, Low Water, Lows, Mmcf, Natural Gas Futures, Natural Gas Wells, Punch Line, Raymond James, Sherlock Holmes, Sherlock Homes, Signpost, Strategist, Water Mark, Wikipedia
Posted in Markets | Comments Off

Energy and Natural Resources Market Radar (January 23, 2012)

Sunday, January 22nd, 2012

Energy and Natural Resources Market Radar (January 23, 2012)

Strengths

• The Global Resources Fund performance over the last week has bested its benchmark largely through stock selection in the energy sector and specifically in the oil services and equipment area.
• Barclay’s capital highlighted that base metals have started the year with a “bang;” prices are up on average 11 percent since the start of the year making it the best-performing sector so far. Copper gained approximately 10 percent for the week.
• One of the key leading indicators of U.S. non-residential construction, the American Institute of Architects Billings Index, remained above 50 in December, representing an increase in the month.
• Consultancy Steel and Metal Market Research said this week global crude stainless steel production hit a new record high of 35.5 million tons in 2011, but the pace of growth was slower than the previous year.
• Freeport McMoRan has resumed copper concentrate shipments from its Grasberg copper-gold mine in Indonesia, which had recently only resumed work from a three-month strike ending in December. Freeport is the world’s second-largest copper mine and supplied the global market with nearly 2.5 percent of the global demand.

Weaknesses

• After another soft reading of the weekly storage withdrawal, natural gas prices tumbled further this week as warmer than normal weather curbs demand. Natural gas futures fell 12 percent this week to close at $2.35 per mmbtu.
• Total steel shipments rose just 5 percent year-over-year for their smallest increase in nearly two years. Shipments fell 14.7 percent month-over-month on a days-adjusted basis, while total steel inventories rose 3.1 percent month-over-month and 8.3 percent year-over-year.
• According to Deutsche Bank, Norsk Hydro, the world’s fifth-largest primary aluminum producer with market share of nearly 4 percent, has confirmed that it will close one of the three potlines at its 180,000 tons per annum Kurri Kurri smelter in Australia in response to the price weakness of recent months. Rio Tinto and Alcoa, the world’s second- and third-largest producers, have also announced plans to close some capacity.
• ArcelorMittal will extend the closure of it Sestao plant in Spain as it does not expect southern European steel demand to improve in the near future, it said. The company had announced last October that it would halt steel production at the Sestao plant in November and December. “ArcelorMittal Sestao will restart operation as soon as market conditions turn around,” a spokesperson said in an e-mailed statement.

Opportunities

• Deutsche Bank highlighted that the International Energy Agency (IEA) said that China’s oil-product consumption is expected to rise 400,000 barrels per day to 9.9 million barrels per day in 2012, almost 40 percent of the increase in global consumption. According to its forecast, global crude oil consumption is expected to increase 1.1 million barrels per day to 90 million barrels per day.
• BP Plc said that China will drive the world’s growth in oil demand in the next 20 years and in 2027 will overtake the United States as the world’s top oil consumer.
• Deutsche Bank reported that Japan’s largest copper smelter suspended its Saganoseki smelter operation, with an annual capacity of 200 000 tons, due to fire damage. On top of this, Philippine’s PASAR copper smelter is also facing production problems. On the back of production disruptions, London Metal Exchange (LME) copper cancelled warrants increased significantly from New Orleans, where more free copper units exist globally.
• Freeport McMoRan reported that downstream demand in the U.S. is positive and project a tight and encouraging copper market in 2012, with the auto sector strong and signs of improvement in construction.
• U.S. service center steel inventories rose 3 percent month-over-month for December and were still 18.7 percent below average historical levels. December inventories were 52.8 percent below peak levels and 42.5 percent above trough levels. Inventory restocking likely has helped boost steel prices in recent months.

Threats

• Nigeria’s government ordered a fresh audit of its entire oil and gas sector covering the last three years. This move follows the opening of an investigation into the sector by the corruption watchdog and a separate Senate investigation into fuel subsidies – all announced this week. In response to a reduction in fuel subsidies, the country has witnessed a country-wide strike threatening the gas and oil sector.
• Crude oil is the most vulnerable to near-term supply disruption from geopolitical tensions. The sustainability of commodity supply is being challenged by rising state political interference and local self-interests that is delaying and constraining the resource development needed to meet emerging demand growth.

Tags: Aluminum Producer, American Institute Of Architects, Base Metals, Copper Gold, Copper Mine, Freeport Mcmoran, Fund Performance, Global Demand, Gold Mine, Institute Of Architects, Leading Indicators, Market Radar, Natural Gas Futures, Natural Gas Prices, Norsk Hydro, Oil Services, Resources Fund, Stainless Steel Production, Steel Shipments, Stock Selection
Posted in Markets | Comments Off

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
Posted in Markets | Comments Off

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
Posted in Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Cheat Sheet (

Sunday, January 23rd, 2011

Energy and Natural Resources Market Cheat Sheet (January 24, 2011)

Strengths

• China’s December crude steel output rose to 51.52 million tons in December, up 2.7 percent from the previous month, according to data from the National Bureau of Statistics.
• China imported a record 1.03 million tons of liquefied natural gas (LNG) in Dececmber, said China’s Customs Statistics Information Centre.
• The spot iron ore price reached a two-year high of $186 per ton this week after the Indian state of Karnataka banned iron ore exports. Karnataka accounts for 25 percent of Indian’s annual exports of 100 million tons of iron ore.
• Natural gas futures gained 5 percent on the week as cold weather pushed up heating demand in the U.S.
• Weekly U.S. Department of Energy statistics show the four-week average oil demand is up a healthy 3.8 percent on a year-over-year basis.

Weaknesses

• The state of Queensland in Australia cut its annual steelmaking coal output forecast by 10.5 percent and expects to resume normal mining operations in about three months. Coking coal output in the 12 months ended June 30 is forecast to be 177.3 million metric tons, down from an initial projection of 198 million tons, Mines and Energy minister Stephen Robertson said.

Opportunities

• China may soon begin a much-delayed program of stockpiling corn for state reserves in the northeast, the National Business Daily reported. Sinograin, which manages government reserves, may buy an initial volume of 9 million tons at 1,800 yuan per ton from farmers in Jilin, the country’s largest corn growing area.

Threats

• Vietnam’s state-run Coal and Mineral Industry Group plans to cut this year’s coal output by 6 percent (44 million tons) from 2010 levels, according to Vietnam News.
• The new Energy Ministry proposals approved this week means Russian oil companies may face higher oil products export duties beginning March 2011, the Kommersant business daily reported. While the crude oil export duty could be cut by 7 percent; the oil product export duty could be hiked from 60 percent to 66 percent of the duty on crude oil.
• Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta, said it is planning a “ferocious” attack on the country’s downstream oil industry soon, according to a statement by the group.
• India may tax iron ore exports at a uniform rate of 20 percent as the government seeks to boost its tax collections, the Financial Express reported. India currently levies a tax of 15 percent on shipments of iron ore lumps and 5 percent on iron ore fines, the newspaper said.

Tags: Coal Output, Cold Weather, Crude Steel, energy, Energy Statistics, Gas Lng, India, Initial Volume, Iron Ore Exports, Iron Ore Price, Kommersant, Liquefied Natural Gas, Million Metric Tons, National Bureau Of Statistics, National Bureau Of Statistics China, Natural Gas Futures, Russia, Russian Oil Companies, State Of Queensland, Statistics Information, Steel Output, Stephen Robertson, Vietnam News
Posted in Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Diary (October 4, 2010)

Saturday, October 2nd, 2010

Energy and Natural Resources Market

Strengths

• HSBC’s measure of China’s manufacturing Purchasing Manager’s Index (PMI) for September increased to 52.9, the highest level in five months, from 51.9 in the prior month. The PMI figure, as well as other recent economic data out of China, suggests that economic growth in the country might be re-accelerating following signs of softening after tightening measures were implemented earlier in the year.
• Copper prices hit a 26-month high of $3.65 per pound this week.
• Crude oil prices gained 6.6 percent for the week on further talk of quantitative easing from the U.S. Federal Reserve and a bullish weekly inventory report.

Weaknesses

• Natural gas futures prices slid 2 percent this week as industry supply and demand data continue to indicate surplus inventories and production.
• Steel output in Japan, the world’s second-biggest producer, will probably drop 1.5 percent next quarter because of slowing demand from carmakers, according to the nation’s Ministry of Economy, Trade and Industry.
• Consol Energy said Friday it will lay off 231 workers at two mines. The Pittsburgh company said it will lay off 135 hourly and 36 salary workers at the Emery Mine near Price, Utah, because of higher production costs, relative to the local region, and market conditions for coal. More than 250,000 tons of coal at the mine remain to be sold. Consol Energy said it will also lay off 60 employees at Mine 84 near Washington, Pa., because of the high cost structure of the mine versus current market prices for coal being produced there.

Opportunities

• In a recently published report, oil analysts at Bank of Montreal estimate that the Eagle Ford shale play in South Texas holds recoverable resources of roughly 8.8 billion barrels of oil equivalent (boe) and that production could approach 1.4 million boe per day by the year 2015.
• At an industry conference in Dalian, China, Rio Tinto indicated that Chinese ore demand this year may exceed last year’s level as it continues to run at full capacity. Further, Vale said that it expects Chinese steel demand to pick up in late 2010 or early 2011.
• China’s coal use will probably grow by more than a third in the next five years, according to Peabody Energy Corp., the largest U.S. coal producer. China’s current coal consumption of 3.3 billion tons a year will likely rise to 4.5 billion tons.
• State-owned China National Nuclear Corp (CNNC) is scheduled to spend Rmb800 billion, or US$117.6 billion, on the development of nuclear industry by 2020 (CNNC’s nuclear investment is expected to reach Rmb500 billion by 2015), according to the company.
• The International Energy Agency said on Friday it anticipated upward pressure on oil prices in the second half of 2011 due to a projected decline in oil stocks. The agency also said the most recent round of sanctions imposed on Iran by the United States and the European Union was leading to significant delays for Iran’s oil and gas developing projects. A senior oil analyst for the agency’s oil and industry markets division said that if the global economy grew at an annual rate of more than 4 percent in the first half of 2011, as projected by the International Monetary Fund, oil supplies could start to be squeezed.

Threats

• According to the Wall Street Journal, BHP Billiton and Rio Tinto are looking at revising or postponing their proposed $116 billion iron ore joint venture until the Australian government sets the terms of its planned mining tax.
• The youth wing of South Africa’s ruling African National Congress said it will spend the next two years seeking support for the nationalization of mines after succeeding in putting it on the party’s agenda for debate.
• The Department of Energy and Climate Change (DECC) forecasts U.K. oil production is likely to fall to 1.03 million barrels per day (bpd) by 2015, down from 1.39 million bpd produced last year, which was the lowest output since 1978. Britain’s oil and gas output has steadily declined over the last decade, peaking in 1999, as North Sea fields have depleted.

Tags: Bank Of Montreal, China, Commodities, Consol Energy, Copper Prices, Crude Oil Prices, Dalian China, Eagle Ford, Economy Trade, energy, Gas Futures Prices, India, Market Strengths, Natural Gas, Natural Gas Futures, Natural Gas Futures Prices, Natural Resources, oil, Pittsburgh Company, Production Steel, Recoverable Resources, Report Oil, Report Weaknesses, Rio Tinto, Salary Workers, Steel Output, Surplus Inventories
Posted in China, Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Energy and Natural Resources Market Diary (July 12, 2010)

Wednesday, July 14th, 2010

Energy and Natural Resources Market Diary (July 12, 2010)

Strengths

• Crude oil futures (NYMEX) gained over 5 percent this week to close above $76 per barrel, the best rise since May, on a rebound in risk assets and a larger than expected 5 million barrel draw from inventories reported by the U.S. Dept. of Energy this past week.
• U.S. distillate demand measured on a 4 week average is up 16 percent year-over-year.
• German industrial production rose by 2.6 percent month-over-month in May, much higher than consensus estimates of 0.6 percent, with year-over-year growth of 12.4 percent still solid. If production is flat in June, output will be up 5.8 percent quarter-over-quarter in 2Q, much stronger than the 1.0 percent quarter-over-quarter rise in 1Q.

Weaknesses

• Natural gas futures (NYMEX) fell 6 percent this week on lower expectations for demand and a larger than expected build in inventories in the U.S.
• Norway’s oil production fell to a preliminary 1.52 million barrels per day on average in June from an actual production of 1.85 million in May, the Norwegian Petroleum Directorate said today. Gas production fell to a preliminary 8.5 billion standard cubic meters in June from 9 Bcm in May. Statoil is the largest oil and gas producer on the Norwegian continental shelf.
• Power-station coal prices at Australia’s Newcastle port, a benchmark for Asia, fell 1.3 percent, declining for the second week in three. The index for coal prices at the New South Wales port fell to $97.06 a metric ton in the week ended today from $98.29 the previous week, according to the globalCOAL NEWC Index.

Opportunities

• The International Monetary Fund raised its 2010 world growth forecast to 4.6 percent from 4.1 percent in April and boosted estimates for the United States and China.
• The U.S. government’s request to reinstate the deep-water oil-drilling moratorium while it challenges a lower court order rejecting the ban was denied by a federal appeals panel yesterday in Louisiana. This was, however, on the basis that the request did not show any likelihood of drilling activities being resumed pending the appeal. The actual appeal will be heard during the week of August 30.
• Total said that it has signed an agreement with Canadian oil sands developer UTS Energy to acquire UTS Corporation with its main asset, a 20 percent interest in the Fort Hills mining project in the Canada’s Athabasca region, for C$1.5 billion.
• According to Upstreamonline, China National Petroleum Corporation (CNPC) is planning to produce 500 million cubic metres of shale gas by 2015. However, Liao Yongyuan, CNPC’s Deputy General Manager, said that China does not have any shale gas production and evaluation of the potential resources is only at a preliminary stage.
• Lloyd’s of London will not insure or reinsure petroleum shipments going into Iran, the insurance market said on Friday. U.S. President Barack Obama signed into law last week far-reaching new sanctions that aim to squeeze the Islamic Republic’s fuel imports and increase its international isolation. “The U.S. is an important market for Lloyd’s and, in recognition of this, the market will not insure or reinsure refined petroleum going into Iran,” Lloyd’s General Counsel Sean McGovern told Reuters in a statement. “Lloyd’s will always comply with applicable sanctions,” McGovern.

Threats

• The Chinese government is looking to extend the resources tax on extraction of oil, gas and coal in order to fund development of resource rich areas. The tax will be set at a benchmark of 5 percent and will vary across commodities, according to Du Ying, Vice Chairman of the National Development and Reform Commission.
• Mohammad Ali Khatibi, Iran’s OPEC governor, said that OPEC has surplus capacity of 4-6 mbpd, which is keeping the crude prices low. He said that “Right now, because of the economic crisis, OPEC is facing a 4-6 million barrel surplus capacity”. And “This will be having a psychological effect on the oil price,” he added. He stated that “Because of the problems happening in the Gulf of Mexico, it is predicted that the production cost of crude oil in deep waters will increase.” And “It is unlikely from now on that they will permit exploration in sensitive areas,” he added.
• China, the world’s largest rare-earths producer, cut export quotas for the minerals by 72 percent for the second half of 2010, raising the possibility of a trade dispute with the U.S. Shipments will be capped at 7,976 metric tons, down from 28,417 tons for the same period a year ago, according to data from the Ministry of Commerce
• China’s grain production this year may decline by 1 percent to 2 percent on excessive flooding in southern areas the Institute of Agriculture Resources and Regional Planning at the Chinese Academy of Agricultural Sciences said.

Tags: Canadian Market, Coal Prices, Commodities, Consensus Estimates, Crude Oil Futures, Cubic Meters, Dept Of Energy, energy, Federal Appeals Panel, Gas Producer, Globalcoal, International Monetary Fund, Market Diary, Metric Ton, Natural Gas, Natural Gas Futures, Natural Resources, New South Wales, New South Wales Port, Norwegian Continental Shelf, Norwegian Petroleum Directorate, Nymex, Oil Drilling, Oil Sands, Statoil, Water Oil
Posted in Canadian Market, China, Commodities, Energy & Natural Resources, Markets, Oil and Gas | Comments Off