Energy and Natural Resources Market Cheat Sheet (June 6, 2011)

Energy and Natural Resources Market Cheat Sheet (June 6, 2011)

Strengths

  • The Air Transport Association (IATA) data for April showed a strong resurgence in air traffic with freight traffic growing by 5.4 percent and international passengers increasing 16.5 percent year-over-year. International passenger traffic has climbed to 7 percent above pre-recession peaks.
  • The U.S. Mint sold 3.65 million ounces of American Eagle silver coins in May, a rise of 30 percent from April’s 2.82 million ounces.
  • According to the International Monetary Fund (IMF), Russia raised its gold reserves by 13.7 tons in April to 824.8 tons, and Mexico increased its gold reserves by 5.9 tons in April to 106.1 tons.
  • The Aluminum Association’s producer shipment and inventory data for April showed that the pace of growth in North American shipments of ingot and mill products increased by 10 percent year-over-year.

Weaknesses

  • Japan’s refined copper exports plunged 51 percent from a year earlier to 23,582 tons in April, for the seventh straight month of year-over-year declines.
  • According to the Indonesian Coal Mining Association, Japan is expected to import 57 million to 58 million tons of coal from Indonesia this year, down from previous peaks of around 65 million tons.
  • According to industry data from the China Electricity Council (CEC), five major power generating companies suffered losses of 10.57 billion yuan from January through April. This is a loss of 7.3 billion yuan greater than the previous year, and increasing coal prices stand to make matters worse for the power generating companies.

Opportunities

  • Russian coal exports to China may increase by 30 percent in the next 5 years. Russia exported about 11.6 million tons of coal last year to China at an average cost of $130 per ton, including both steam and coking coal varieties. The deliveries may increase to 15 million tons per year during the next five years and may even increase to 20 million tons.
  • China’s steel demand may increase to between 670 and 750 million tons by 2015. This estimate is based on the assumption that China’s economy will grow at a rate of 8 to 9 percent year-over-year in the next five years. The first four months of this year saw China’s steel production grow by 8.3 percent year-over-year.
  • Saudi Arabia Oil ProductionSaudi Arabia’s Oil Minister Ali Al-Naimi gave a speech this week in Poland ahead of the OPEC meeting in Vienna next week. He indicated that the OPEC nation will invest $125 billion in the next five years on both upstream and downstream assets to continue to meet the world’s oil needs. Minister Al-Naimi indicated that OPEC continues to maintain 3 to 3.5 million barrels per day of spare capacity to meet any market shortages.

Threats

  • BHP Billiton is facing the first strike at its Australian coal mines in a decade. About 4,000 members of the Construction, Forestry, Mining and Energy Union at all seven mines in the Bowen Basin in Queensland State, owned by BHP Billiton Mitsubishi Alliance, will vote to give the union power to take industrial action.
  • China’s NDRC decided to raise electricity prices for industrial, commercial and agricultural users by 4 to 5 percent this week. This is the first time has China raised electricity prices in more than a year, with the aim to maintain power supply and mitigate financial losses at electricity generators. Currently around 40 percent of the power generators are operating at a loss, therefore more tariffs hikes are likely.
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