Energy and Natural Resources Market Radar (May 5, 2014)
Strengths
- Commodities outperformed equities and bonds in first quarter of 2014, taking the pole position among major asset classes for the first time since the first half of 2008.
- The CRU weekly steel price assessment shows US HRC at $683 per short ton, up $4 from the prior week ending 4/30, its fifth-consecutive weekly rise. Also, the quarter-to-date average is $671 per ton. This compares to first- and fourth-quarter averages of $650/st and $661/st, respectively.
- Copper futures rose the most in five weeks as global stockpiles drop to the lowest level in five years according to data compiled by Bloomberg.
Weaknesses
- Iron ore prices plunged to a seven-week low as China’s banking regulator urged a probe on iron-ore financing deals, in a bid to minimize default risks, prompting a sell-off. Platts assessed 62% Fe Iron Ore Index fell to $108.25/dry mt on April 28, the lowest since March 13.
- Aluminum Corp. of China Ltd., the nation's biggest producer of the lightweight metal, said its first-quarter loss widened as industry overcapacity caused prices to fall. The Beijing-based company posted a loss of 2.2 billion yuan ($352 million), or 0.16 yuan a share, in the three months ended March 31, from 975 million yuan, or 0.07 yuan a share, a year ago, it said in a statement to the Shanghai Stock Exchange.
- Homeownership in the United States fell in the first quarter to its lowest in more than 18 years, suggesting it will take a while for housing to heal from the recession's deep scars. The seasonally adjusted homeownership rate, the share of households owning a home, slipped to 65 percent. That was the lowest since the third quarter of 1995.
Opportunities
- GFMS, the precious metals research group owned by Thomson Reuters, launched its 2014 Platinum & Palladiumsurvey. The group forecast in 2014 the platinum market would be in a physical deficit of 0.7 Moz and the palladium market a deficit of 1.3 Moz. The research group stated that even if the strike that has crippled South African PGM production ends in the next few weeks, it would be some time before the mines were operating again, transforming the current loss of about 0.6 Moz of platinum output into a total loss of near 1 Moz (with palladium losses about 50 percent of this). As a result, GFMS saw the platinum price trading as high as $1,700/oz and palladium testing $930/oz in the second half of 2014.
- China’s aluminum industry is in search of a new bauxite source following the Indonesian ore export ban (65 percent of total China’s bauxite imports), according to Wood Mackenzie. China’s alumina refinery production is forecasted to grow by approximately 17m tonnes by 2018, and a further 40m t by 2030 requiring additional 130m t of bauxite over 2013 levels and as much as 240m t by 2030.
- U.S. LNG export approvals may total 18.53 billion cubic feet a day (bcfpd) if the existing pipeline of projects are approved. Current approvals stand at 9.3 bcfpd and may double if all projects that have also sought Federal Energy Regulatory Commission approval are signed off by the Energy Department. LNG exports are expected to start in late 2015 when Cheniere Energy's Sabine Pass is expected to reach completion. U.S natural gas production is forecast to average 69.5 bcfpd in 2015, according to the EIA.
Threats
- Growing tension surrounds Russia and Ukraine, with no sign of a resolution to the current crisis. U.S. President Barack Obama announced new sanctions against Russia, including expanding the list of people whose assets will be frozen and who will be denied travel visas to both the U.S. and EU. These sanctions do not seem very tough at all.
- China's GDP is likely to grow 7.3 percent in 2014, according to the median forecast in a poll of 34 economists, a reading that is lower than 7.7 percent in 2013 and could mark the weakest showing in 24 years.
