Energy and Natural Resources Market Radar (April 7, 2014)
Strengths
- Aluminum surged to its biggest weekly gain since November 2012 in London as orders to withdraw the metal for warehouses increased while producers looked to curb output.
- The price of nickel on the London metals exchange made a new 52-week high on further supply concerns over the export ban in Indonesia.
- West Texas Intermediate and Brent oil prices remained above $100 a barrel this week and gained over the prior two days after the U.S. employment report increased in March, indicating stronger demand for the fuel.
Weaknesses
- McCloskey newswire reports that semi-soft coal pricing for the second quarter is settling at $90 per tonne free on board (FOB) following negotiations between Australian producers and Japanese steel mills this week. This number is down just over 13 percent from the $103.50 per tonne first-quarter settlement.
- Manufacturing PMIs for March fell slightly from February’s level for both developed and emerging economies, with a stronger U.S. not enough to offset mostly weaker prints elsewhere. The shifts were small, however, and the main theme is still that developed economies continue to outperform developing ones.
- Natural gas fell in New York trading this week as weather forecasts predicted warmer weather that would curb demand for the heating fuel.
Opportunities
- BHP on Tuesday confirmed its plans to focus its business on just four commodities – iron ore, copper, coal and petroleum – with potash a possible addition. That leaves its aluminum, manganese and nickel assets as non-core assets that could be spun off via IPOs or as asset divestitures.
- China outlined a package of measures including railway spending and tax relief to support the economy after the recent slowdown. The government will sell 150 billion yuan of bonds this year to help infrastructure projects mainly in less developed central and western regions. China will create a development fund of 200 billion yuan to 300 billion yuan a year to increase sources of rail.
- Agriculture and fertilizer equities could strengthen as the cost of food worldwide has surged in March to its highest peak in 10 months, the United Nations Food and Agriculture Organization (FAO) reported. In a news release, the agency said that its most recent Food Price Index, which measures the monthly change in international prices of a basket of 55 food commodities, including meat, dairy, sugar, and cereals, went up 4.8 points or 2.3 per cent, averaging now 212.8 points.
Threats
- Chinese end-users of refined copper have limited purchases of the metal in a bet that prices will decline further after a 5 percent fall last month and despite a seasonal rise in orders as well as weaker domestic supply.
- The global refined copper market is seen flipping into a surplus of 405,000 tonnes this year after four consecutive years of apparent deficit as new mine supply outstrips demand, the International Copper Study Group (ICSG) said on Wednesday. In 2015, the ICSG expects a bigger global surplus of 595,000 tonnes as refined copper output continues to exceed the expected growth in consumption.
