Energy and Natural Resources Market Diary (July 5, 2010)
Strengths
- Weekly data released from the U.S. Energy Information Association (EIA) indicates that distillate fuel demand is running 10.9 percent above last year based on the 4-week average.
- A monthly EIA natural gas production survey released this week showed a 2.6 percent year-over-year gain in April.
- Import prices into Turkey have started to increase as Turkish mills look to replenish stocks before Ramadan, analysts at Dahlman Rose report. Heavy melt scrap in Turkey is currently priced at $320-330 per long ton, up $7-15 from last year. We understand that domestic scrap prices in the U.S. are set to decrease $20-40 per long ton in July but Turkish buyers returning to the market may put a floor on how far prices fall. This could in turn be supportive of carbon steel prices.
Weaknesses
- The latest World Steel Dynamics Steel Benchmarker assessment has shown another fall in steel prices across the globe. In terms of hot rolled coil, the world export price showed the largest drop, down 5.1 percent to $593 per tonne. This is now down 17.4 percent from late April highs.
- Purchasing Manager's Index (PMI) data released by the Institute for Supply Management this week showed that manufacturing activity in the U.S. slowed in June, with the headline number moving lower to 56.2 from 59.7 in May. Survey respondents expect a slowdown in growth during the second half of the year.
- According to trade data, coal imports into South Korea fell to an 11-month low of 8.5 million tonnes in May after hitting a record monthly volume of 10.3 million tonnes in April.
Opportunities
- The Australian government and miners reached an agreement on the mining tax last night. The tax, which is expected to kick-in on July 1, 2012, will cover coal, iron ore, onshore petroleum & gas, with coal and iron ore taxed at 30 percent. As expected based on prior news reports, the tax profit threshold will be the 10-year government bond rate (currently at around 5 percent), plus 7 percent and miners will be able to depreciate existing assets at market value over the life of the asset for a maximum of 25 years. Further, any new capital expenditures can be fully deducted up front.
- China may face a shortfall of 200 million metric tons of coal per annum by 2015, according to China Oil, Gas & Petrochemicals published by the Xinhua News Agency. Coal demand may rise to a record 3.8 billion tons by 2015 as domestic coal output reaches 3.6 billion tons, according to estimates in the latest issue.
- Coal demand in India may increase more than 500 million tonnes between 2008 and 2015, according to Wood Mackenzie. Demand may reach 1.5 billion tonnes a year by 2025.
- China's new government-backed coal price benchmark, called the Bohai Rim Coal Price Index, will incorporate spot coal prices from the ports of Qinhuangdao, Jingtang, Caofeidian and Huanghua, according to Reuters. The index is aimed at bringing more transparency to spot coal pricing out of northern China, although this index may not be significantly different from current Qinhuangdao pricing, with Qinhuangdao accounting for approximately 55 percent of shipments from the four ports.
Threats
- Growing nuclear power supply will see Japan use less liquefied natural gas (LNG) in the coming years, even though stiff carbon-cutting and new technology favor nuclear over oil and coal for thermal power plants.
- Kazakhstan may impose export duties on copper, iron ore, ferroalloy, zinc and lead, produced in the country by companies including ENRC, Glencore International and Kazakhmys, a mine lobby said. “We hope that the government will have enough wisdom to stop” its plans for taxes of 5-10 percent on metals,” Nikolai Radostovets, Director of Kazakhstan's Association of Mining and Metallurgical Enterprises, said in an interview in Astana. He said the proposed duties may affect plans for development projects in the country.
