Energy and Natural Resources Market Radar (March 26, 2012)
Strengths
- Despite concerns over a slowing economy in China, recent statistics for the first two months of the year indicate rather robust trends for commodity demand. Chinese refined copper imports rebounded from the New Year holidays, up 12 percent month-over-month, reaching 375.8 kilotons in February.
- The latest incoming data from Asia continues to surprise to the upside, with demand in the region posting a year-over-year growth of 373 thousand barrels per day in January. Oil demand in non-OECD countries has also improved significantly, coupled with indications from OECD Asia Pacific being extremely strong. A critical driver for the boost comes from Japanese oil demand (up year-over-year by 297 thousand barrels per day) supported by the loss of nuclear power post-Fukushima.
- South Korean oil demand appears to have benefited from the cold spell in February. Despite a mild winter in January, demand increased by 13 thousand barrels per day. February numbers are also showing further demand pick-up by 173 thousand barrels per day year-over-year. This is one of the strongest growth rates ever.
- China coal imports surged 154 percent year-over-year to reach 17 million tons in February. Coal exports stood at 1.21 million tons last month.
- Chinese oil demand soared to a record high in February, supported by all-time high demand in gasoline and strong diesel demand.
Weaknesses
- There has been more pressure placed on the Indian Government. The FT had a front page story on the alleged $210 billion losses under pricing of coal blocks sold between 2004 and 2009.
- South Africa has suspended almost all oil imports from Iran, its biggest crude supplier, in response to U.S. diplomatic pressure, a senior diplomat said on Thursday.
- The HSBC flash purchasing managers index (PMI) numbers, the earliest indicator of China's industrial activity, fell to 48.1 from February's four-month high of 49.6, and firmly below 50, the threshold that divides contraction and growth. Markit's Eurozone Composite PMI also declined unexpectedly to 48.7 in March from 49.3 in February, a full point below economists' consensus forecast of a 49.7 reading, capping the first quarter of the year in disappointing style. Combined, the weakness in manufacturing continues to provide a headwind to resource performance.
Opportunities
- The Macquarie China Steel Survey, which gauges sentiment on the ground in China from the steel industry, showed a notable improvement in market expectations. Improving orders have been the biggest change, with traders and mills reporting significant month-over-month improvements. In addition to improving orders, mills also are planning to raise production – the first time they have signaled a raise since September 2011.
- China’s aluminum demand will be sustained through the government’s affordable housing projects with the consumption outlook most bullish from the transportation sector, which may use 13.5 percent more of the metal this year, said Wen Xianjun, Vice Chairman of the China Nonferrous Metals Industry Association.
- President Obama has said that he is directing agencies to speed up any regulatory approvals needed to construct the Keystone XL oil pipeline’s southern leg from Cushing, Oklahoma, to the Gulf Coast. Obama has initiated a new process that seeks to speed up the approval of key energy and infrastructure projects such as pipelines, highways, ports and electricity transmission lines.
- The China National Grain and Oils Information Center says China will import about 29 million tons of soybeans in the first half of 2012, up by 25 percent year-over-year, owing to strong demand for livestock feed.
Threats
- China intends to limit domestic output and consumption of coal in the five years through 2015 to reduce pollution and curb reliance on the fuel. Production and demand will be restricted to about 3.9 billion metric tons a year by 2015, according to a five-year plan for the coal industry released by the National Energy Administration at a briefing in Beijing this week.
- Ian Ashby, President of BHP Billiton Iron Ore, gave a presentation at the Australian Journal of Mining, Global Iron Ore & Steel Conference in Perth this week. The newswires picked up on his comments that Chinese demand for iron ore is “flattening out,” and could fall to “single digits” if it hasn’t already. While there was nothing new in the comments, they did spook investors who are already nervous about a lack of recovery in China thus far in 2012.
- Iron ore may decline 8.5 percent this year as global output increases and growth in Asian steel production slows, according to the Australia Bureau of Resources and Energy Economics. Prices may average about $140 a metric ton in 2012 from $153 last year. "Over the remainder of 2012, iron-ore prices are forecast to ease as production increases from new projects in Australia and growth in Asian steel production weakens," the bureau said. China’s crude-steel production may advance 7 percent to 731 million tons in 2012 compared with an 8.9 percent gain last year, the bureau said.
- China's potential house-buyers hit a record low with only 14.1 percent of Chinese residents planning to buy a house in the upcoming quarter and an overwhelming 67.7 percent considering the current housing price too swollen and "too high to be acceptable," according to the first quarter survey report on depositors issued by the People's Bank of China. Only 9.4 percent of those surveyed in Beijing and Shanghai intend to buy an apartment in the next three months.
- China released its plan to cap coal production and consumption by 2015. China’s National Energy Administration has released a five-year plan which will see coal production and demand restricted to about 3.9 billion metric tons per year by 2015. China produced 3.8 billion tons of coal in 2011.
