Energy and Natural Resources Market Diary (5/1/2010)
Australia is one country to keep an eye on as an indicator of economic activity in China and underlying demand for commodities. The country’s large reserves of coal, iron ore and other natural resources have made it a natural trading partner for booming Asia. In the last 20 years, China and India have gone from receiving 5 percent of Australia’s exports to more than 30 percent, a BCA report said this week. Australia also has been the destination for 25 of China’s cross-border corporate and resource-related transactions since 2005, totaling more than $31 billion.
Strengths
- Australia's thermal coal prices, a benchmark for Asia, jumped 9 percent from a week ago on Tuesday to an 18-month high of $108 per metric ton, as fears over a possible strike at South Africa's major coal terminal fueled market anxiety. This is the highest price since October 2008.
- Steel stockpiles in China, the metal’s largest producer, dropped 9 percent from the end of March to April 23, the China Iron & Steel Association said.
- After the dramatic cuts in production last year, global auto production remains on course to rise by 20 percent in 2010. If this happens, total vehicle production would be close to the peak hit in 2007.
Weaknesses
- Several oil service and equipment stocks related to the oil spill in the Gulf of Mexico sold off this week in heavy trading. The incident resulted from a sudden release of gas from the well, causing a “blowout,” which destroyed the rig and is spilling as much as 5,000 barrels per day of oil into the Gulf of Mexico. Potential damage to the environment could be on par with the Exxon Valdez accident nearly 20 years ago.
- Chinese nickel pig iron production is estimated to have reached 47,000 tons during the first quarter of 2010. This is nearly half of 2009 total production for the year of 109,000 tons. Taken in isolation, this development appears bearish for the nickel market.
- Front-month natural gas futures on the New York Mercantile Exchange ended the week sharply lower, pressured by a larger-than-expected weekly inventory build and smaller-than-expected revisions to U.S. gas production.
Opportunities
- According to the country’s mine minister, copper production in the Democratic Republic of Congo should more than double by 2012 to 850,000 metric tons versus an estimated output of 410,000 tons this year. At current levels, the country produces roughly 2.5 percent of global copper supplies.
Threats
- In response to the Gulf of Mexico oil spill, President Obama said plans to open more of the U.S. coastline to further offshore drilling are on hold until the well can be further investigated.
