Energy and Natural Resources Market Cheat Sheet (June 27, 2011)

Energy and Natural Resources Market Cheat Sheet (June 27, 2011)

Strengths

  • Chinese oil demand is up 9 percent year-over-year in May despite stronger prices and various tightening measures, and is running 10.9 percent higher year to date, far exceeding initial consensus expectation.
  • According to the World Steel Association, global crude steel production in May was 130 million tons, 4.2 percent higher year-over-year. The data also showed that China alone produced 46.4 percent of the world’s crude steel in May.
  • U.S. preliminary steel imports rose to 2.44 million metric tons, up 2.8 percent month-over-month and 20.9 percent year-over-year on a day’s adjusted basis.
  • Aluminum demand in the U.S. and Canada rose 6.6 percent year-over-year to an estimated 1.814 million pounds in April, the Aluminum Association said. In the first four months of the year, demand climbed 8.5 percent year-over-year to 7.127 million pounds, the group said.
  • Indian power utilities increased coal imports by 43 percent during last month to 2.97 million tons. April imports stood at 2.34 million tons. India’s Central Electricity Authority has set a target of 35 million tons of imported thermal coal for fiscal year 2011-2012, according to Bloomberg news.

Weaknesses

  • Crude Oil Futures (West Texas Intermediate) fell 2 this week percent after the International Energy Agency announced it would release 60 million barrels of oil from strategic petroleum reserves in the U.S., Europe, and Asia to ease high oil prices and offset supply disruptions from Libya.
  • The Australian Bureau of Agricultural and Resource Economics and Sciences cut its met coal output and shipment estimates for the year ending June 2012 by 4.4 percent and 5.6 percent, respectively, as the country still tries to recover from historic flooding in the Queensland region. Met coal exports for the fiscal year are now estimated to be 164.2 million tons.
  • The AIA Architecture Billings Index slipped to 47.2 May, suggesting that the positive momentum in confidence in non-residential activity in the U.S. has faded in recent months.
  • According to the U.S. department of Transportation, U.S. highway travel fell 2.4 percent in April from a year earlier and fell 1.3 percent year-over-year in March.
  • Japan’s steel output fell 7 percent year-over-year in May as demand remained weak following the earthquake.
  • Japanese thermal coal imports were down by 21.6 percent to 13.1 million tons in the last month per a report from China Coal Resource.

Opportunities

  • According to the chief engineer for the Ministry of Industry and Information Technology, China may need to eliminate 70 million tons of outdated iron-smelting capacity in the next five years.
  • According to Eskom’s chief commercial officer, Dan Marokane, the South African power utility requires 15 new mining projects over the next 2 to 4 years in order to meet Eskom’s demand between 2011 and 2018. He also said that between 2011 and 2039, about 1200 megawatts of power was at risk due to potential project delays.
  • According to Wall Street analysts, Rio Tinto and BHP Billiton are expected to generate significant free cash flow over the next three to five years due to robust commodity prices. In fact, both companies could generate $20 billion in cash this calendar year, which could be used to buy back further shares, make accretive acquisitions or be distributed via a special dividend.

Threats

  • Germany’s ZEW survey of investor confidence fell to a two and a half year low in June. Both the current conditions and future expectations components of the survey fell, pointing to slower growth in the coming months.
  • Japan’s rebuilding efforts are facing a major hurdle in the form of debris to the tune of 25 million tons of concrete, steel and wood etc. The Japanese government estimates an expense of $8.4 billion and a period of at least three years in clearing areas prior to rebuilding.
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