Energy and Natural Resources Market Radar (April 20, 2014)
Strengths
- Brent crude oil, the global benchmark, climbed to a six-week high near $110 a barrel on concerns that the escalating crisis in Ukraine will disrupt energy supplies.
- The U.S. benchmark steel price continues to rise as hot rolled coil gained $15 per ton to $669 a ton. Also, the quarter-to-date average of $662/ton is above the prior quarter and the fourth quarter of 2013.
- Palladium rose to a three-year high this week on supply concerns as tensions continue in the Ukraine. Russia accounted for 40 percent of world palladium production while South Africa accounted for 37 percent in 2013. Spot palladium prices rose to $815 an ounce during the week, the highest since August 2011.
- The price of nickel continued its run this week, reaching $18,000 a metric ton in London for the first time in more than a year as the threat of sanctions against Russia and Indonesia’s ore export ban raise further supply concerns.
Weaknesses
- The price of natural gas declined by approximately 2 percent this week on forecasts for mild weather that would limit demand for the heating fuel and also increase the pace of refilling storage levels from a decade low.
- The Toronto Globe and Mail reports, “As much of last year’s record crop sits unsold, financially stretched Western Canadian grain farmers are scrambling to secure funding for the coming planting season. Every spring, farmers must pay for seed, fertilizer and other goods to get on with the next cycle of crops. But that’s proving difficult for many this year, amid a rail backlog that has prevented much of last year’s crop from getting to market and bringing in badly needed cash.”
Opportunities
- Renewable energy's share of world electricity generation continued its steady climb last year despite a 14 percent drop in investments to $214.4 billion, according to a new report released this week produced by the Frankfurt School-UNEP Collaborating Centre for Climate and Sustainable Energy Finance. Globally, renewables excluding large hydro accounted for 43.6 percent of newly installed generating capacity in 2013.
- Osaka Gas is looking to buy a stake in at least one U.S. shale gas project to help supply fuel to the Freeport LNG project in Texas, a company official said. Japanese gas and power utilities have been looking for ways to cut fuel costs after their LNG imports and payments rose to record levels last year due to the shutdown of the country's nuclear reactors.
- Vale’s CEO remains optimistic on the Chinese economy on record steel output, despite first-quarter growth being the slowest in 18 months. He expects China’s 2014 steel output to reach 820-850 million tonnes, an increase of 9 percent year-over-year.
Threats
- U.S. banks including Goldman Sachs should be banned from owning commodities businesses, according to a report to the Federal Reserve from Senators Sherrod Brown and Elizabeth Warren. The Democratic Senators from Ohio and Massachusetts said in a letter to the Fed yesterday that “These activities pose significant safety and soundness, legal and reputational risks to the institutions.” The Fed yesterday concluded a comment period on risks posed by bank ownership and trading of commodities, and the possible benefits of imposing additional capital standards on such activities. The Fed announced on January 14 that it was seeking comment on curtailing banks’ involvement in the physical commodities business and other non-banking activity.
- South Africa’s Association of Mineworkers Construction Union (AMCU) has asked for funds from the government and the public to help striking members in the platinum sector. The workers have gone nearly three months without pay.
