Energy and Natural Resources Market
Strengths
- Natural gas futures rallied 12 percent this week on colder weather boosting demand and a bullish weekly inventory report from the U.S. Energy Information Association. Crude oil also gained nearly 4.5 percent this week.
- Exxon announced a $41 billion all-stock bid for XTO Energy, a large domestic natural gas producer. This marks Exxon’s largest deal since it acquired Mobil Oil in 1998 for $81 billion at the bottom of the oil cycle. Exxon will now be the largest natural gas producer in the U.S., with a production of 3.7 billion cubic feet per day.
- South Korea posted its highest increase in industrial electricity sales in eight years as factories increased production of steel and petrochemicals to meet improving global demand. According to the Ministry of Knowledge Economy, sales gained 12 percent year-over-year by volume in November. The ministry said power demand from the steel industry jumped 26 percent and that petrochemical companies used 17 percent more power as exports grew 19 percent last month.
- The latest port data from Australia continued to show strong exports of both thermal and coking coal to China in November. Coking exports in November were 2.9 million metric tons, while thermal exports to China totaled 1.15 million metric tons.
- According to the official statistics, Chinese power consumption in November increased 11.7 percent from a month earlier and 26.9 percent from November 2008.
- Chinese spot iron ore prices have increased to $115 to $117 per metric ton, compared to $111 to $112 per metric ton in the previous week, on concerns that spot iron ore volumes may be impacted by India's recent crackdown on illegal mining.
Weakness
- Tokyo Steel announced it will reduce prices for the second time in three months as manufacturers cut back investment and the government reviews public works spending. Prices of H-beams will drop 2,000 yen, or 3.1%, to 63,000 yen ($711) a metric ton for January contracts, the lowest since February 2004.
Opportunities
- A global survey of nearly 400 oil and gas companies indicates that 2010 global exploration and production spending will increase by 11 percent to $439 billion, according to Barclays Capital.
- China's railway investment increased by 16.5 percent sequentially in the month of November. During the January to November period, China spent $65.8 billion, an increase of 79 percent over the same period last year. China plans to increase its rail capacity from 80,000 kilometers to 120,000 kilometers by 2020. The country plans to spend approximately $100 billion on rail projects annually over the next three years.
- The International Energy Agency has raised its oil demand forecasts for 2009-2014 by around 1.9 million barrels per day, due mainly to stronger economic growth around the world. Demand in 2014 is now expected to reach about 91 million barrels per day.
- The U.S. House of Representatives is considering a bill that would provide for an additional $48.3 billion for infrastructure projects. Some of the major initiatives include: $27.5 billion for highway projects, $8.4 billion for public transportation projects, $2 billion for clean water projects, $2 billion for renewable energy and electrical transmission projects, $800 million for Amtrak and $500 million for airport improvement projects.
- Forecasts for annual contract prices for iron ore were raised by Macquarie Group Ltd. and JPMorgan Chase & Co. after a surge in demand from China. Australian benchmark iron ore prices may rise 30 percent, Macquarie analysts said in a report this week. That compares with their previous estimate of a 10 percent gain.
Threat
- The American Institute of Architects' Architecture Billings Index declined to 42.8 in November from 46.1 in October. The AIA's Billings Index is viewed as a leading indicator for non-residential construction activity. A reading below 50 indicates that a contraction in activity will likely occur over the next nine to 12 months. The index has registered a reading below 50 since January 2008, but in recent months it had shown some signs of improvement before the most recent move lower.
