Energy and Natural Resources Market Radar (July 8, 2013)

Energy and Natural Resources Market Radar (July 8, 2013)

2011.10.04-platformholly
<strong>PRINTER-FRIENDLY VERSION</strong> PRINTER-FRIENDLY VERSION

Energy and Natural Resources Market Radar (July 8, 2013)

Attractive Valuations for Industrial Miners
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Strengths

  • Rallying to the highest level in 14 months, the prompt-month crude oil contract rose $1.64 to settle at $101.89 per barrel on Friday. This comes as fears of supply disruptions in the Middle East and the biggest stockpile decline this year provided support to the market. Egypt’s military announced Wednesday that Mohamed Mursi is no longer president, leading to concerns over supply through the Suez Canal. The market found additional support behind the Energy Information Administration (EIA) inventory report that showed oil stockpiles declined by 10.3 million barrels, more than four times analysts’ estimates of 2.25 million barrels.
  • Latest data shows the trend for strong U.S. car sales continued in June. U.S. car and light truck sales were 15.9 million on a seasonally adjusted annualized basis, 11 percent higher year-over-year. This is the highest such print since November 2007, before the recession began. This is positive for palladium demand, which is the dominant PGM in U.S. car catalyst; as is the trend towards larger vehicles.

Weaknesses

  • Rallying to the highest level in 14 months, the prompt-month crude oil contract rose $1.64 to settle at $101.89 per barrel on Friday. This comes as fears of supply disruptions in the Middle East and the biggest stockpile decline this year provided support to the market. Egypt’s military announced Wednesday that Mohamed Mursi is no longer president, leading to concerns over supply through the Suez Canal. The market found additional support behind the Energy Information Administration (EIA) inventory report that showed oil stockpiles declined by 10.3 million barrels, more than four times analysts’ estimates of 2.25 million barrels.
  • Latest data shows the trend for strong U.S. car sales continued in June. U.S. car and light truck sales were 15.9 million on a seasonally adjusted annualized basis, 11 percent higher year-over-year. This is the highest such print since November 2007, before the recession began. This is positive for palladium demand, which is the dominant PGM in U.S. car catalyst; as is the trend towards larger vehicles.

Opportunities

  • According to analysts at Macquarie, the latest round of monthly manufacturing purchasing managers’ indices (PMIs), published on Monday, were mixed once more, but overall the mix was better than a month ago. These point tentatively to the prospect of a modest upturn in demand for metals and bulk commodities in the coming months. PMIs in the U.S. and Japan, which rank first and third, respectively, in the world output league, increased sharply. European PMIs, while still weak, were at least moving in the right direction, with the exception of Germany. China’s PMI did drop, as anticipated, but the headline number still posted a plus-50 point reading, signalling expansion of output. Selected subindices also suggest stocks of both raw materials and finished goods continue to be reduced, while pricing pressures remain subdued.
  • Grain imports by China, the biggest consumer, are on course to surpass last year as a slump in global prices encourages purchases even as farmers across the country prepare to increase harvests for a tenth straight year. Inbound shipments of wheat, corn and rice are projected to rise, while domestic corn and rice output expands and wheat remains in line with last year, according to estimates from state and private forecasters in China and the U.S. China will buy 4 million metric tons of wheat in the year that began June 1, the most in nine years, while corn imports will rise 67 percent to 5 million tons, the U.S. Department of Agriculture said on July 3.
  • With TransCanada’s Keystone XL pipeline dominating environmental debate in the United States, efforts by America's struggling coal industry to boost coal exports to Asia have flown largely under the public's radar. Freight trains almost two kilometers long are already hauling coal from Montana and Wyoming to the Pacific Northwest, where it's then shipped to energy-hungry Asian nations that have few qualms about burning the maligned fossil fuel. The $40 billion U.S. coal industry is hoping to ship even more coal to Asia depending on the fate of three more coal export terminals proposed for Oregon and Washington State. The industry has been reeling in the face of a steep decline in domestic coal consumption, caused by both an abundance of cheaper natural gas and increasingly strict federal environmental regulations. But exporting American coal overseas is an undertaking with the potential to result in a greater increase in global greenhouse gas emissions than Alberta's oil sands and the Keystone XL pipeline.
  • The U.S. Energy Department on Tuesday laid out plans to offer up to $8 billion in loan assistance for fossil fuel projects that reduce greenhouse gas emissions, as the Obama administration pushes ahead to use its authority to address climate change. The draft proposal opens the door for a wide range of technologies to receive federal backing, from innovative oil and gas drilling projects to projects that capture and store carbon released from coal plants. Since the U.S. gets about 80 percent of its energy from coal and other fossil fuels, Energy Secretary Ernest Moniz said these traditional sources could not be ignored.

Threats

  • The June results of Macquarie’s proprietary China steel sector survey show conditions remained challenging over the last month. Both the steel mills and traders report a contraction in orders, and although the steel traders have seen continued declines in inventory, the mills are starting to report a rise in stocks. Raw material destocking at the mills has continued, but there are signs that this is now coming to an end.
  • The U.S. Dollar index gained 1.5 percent on the week and hit a 52-week high Friday as stronger jobs data lent support to the Fed’s tapering of its quantitative easing program.