Energy and Natural Resources Market Cheat Sheet (February 28, 2011)

Energy and Natural Resources Market Cheat Sheet (February 28, 2011)

Oil Prices

Strengths

  • Global crude steel production increased 5.3 percent on a year-over-year basis to 119.4 million tons in January. The bulk of the increase is attributable to China, according to the World Steel Association.
  • January daily primary aluminium output increased to 68.8 thousand tons (Kt) from 68.5Kt the previous month.
  • Precious metals advanced strongly with gold hitting a five-week high after the U.S. Consumer Price Index (CPI) increased at the fastest pace in more than a year.
  • Chinese seaborne metallurgical coal imports for January 2011 surged to 4.49 million tons. At 53 million tons on an annualized basis, this is the highest level since July 2009 and the third-highest on record.
  • Copper stockpiles monitored by the Shanghai Futures Exchange dropped for the first time in four weeks, according to weekly exchange data. Inventories fell by 2,961 metric tons from a nine-month high last week to 158,101 tons, based on a survey of eight warehouses in Shanghai.

Weaknesses

  • The American Institute of Architects reporting its ABI (Architecture Billings Index) declined to 50, below December’s 53.9 reading. A score below 50 indicates a decline in demand for design services. China’s coal imports fell 4 percent last month as milder weather and rising stockpiles prompted a decline in purchases. Imports came in at 16.56 million tons, down from 17.34 million tons in December.
  • All metals sold off heavily this week, as concerns over the escalating Libyan crisis and emerging market inflationary pressures drove commodity risk aversion.

Opportunities

  • South Korea plans to stockpile more copper to help shield the country’s economy from any shortage of the metal causing a spike in prices. The state-run Public Procurement Service will boost reserves to 80 days of import demand by 2015 from the previous 60-day target, according to a statement. The service cut the target for the aluminium reserve to 40 days of import demand from 60 days as there are many suppliers in the global market, leaving zinc and nickel targets unchanged at 60 days.
  • Russia will cut its oil export tax from 65 to 60 percent in 2010 and may reduce it to 55 percent in 2014, according to the Ministry of Energy.
  • China plans to control steel production over the next five years and increase iron ore mine investment overseas, the China Iron & Steel Association said. China will also promote cross-regional mergers in the steel industry.
  • India’s farm minister said that it will continue exporting wheat and rice, despite the impact on food price inflation.
  • The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that it has a clear policy of meeting any supply shortage, but for now there is no lack of oil.
  • Rio Tinto Group and BHP Billiton Ltd., the world’s second- and third-largest iron ore exporters, may raise contract prices about 23 percent in the second quarter as spot prices hit a record, according to calculations based on The Steel Index pricing.

Threats

  • Immediate oil market fears center on the fact that five countries—Bahrain, Yemen, Algeria, Libya and Iran—represent 10 percent of global oil production. More far-reaching concerns are that the unrest in these countries could spread to their neighbors that represent a far larger share of the global oil production.
  • Reuters reported that Japan aims to cut rare earth consumption by one third within a few years and reduce its reliance on China, by providing subsidies for recycling and investing in new ways to limit the use of rare earth metals.
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