Energy and Natural Resources Market Radar (June 2, 2014)

Energy and Natural Resources Market Radar (June 2, 2014)

click to enlarge

Strengths

• Drilling rigs targeting oil in the U.S. advanced to a record number as exploration and production companies ramped up operations in the Permian Basin of Texas and New Mexico, the largest domestic onshore crude play.  Oil rigs increased to 1,536 this week, the highest level since 1987, according to Baker Hughes.
• Aluminum producers seek a record premium of $405-410/ton from Japanese buyers for third quarter shipments on tight supply, higher overseas spot premiums and strong domestic demand.  Premiums in Europe's spot market rose to a record high of $380-400/ton last week.
• Cheniere Energy Inc. is on track to be the first company to liquefy and export natural gas produced from the U.S. shale boom. The company signed a 20-year sale and purchase agreement with Iberdrola SA, Spain’s biggest utility.

Weaknesses

• Wheat futures declined this week, capping the biggest monthly drop since 2011, and corn declined to a 12-week low amid signs that crop conditions improved in the U.S., which is the world’s largest grain exporter.
• U.S. hot rolled coil (HRC) steel prices fell for second straight week on a rise in production. The CRU Weekly Price assessment shows U.S HRC at $683 per short ton, down $2 from the last week ending May 28, following a decline of $2/ton the prior week.
• Chinese iron ore inventories continue to rise. Iron ore inventories at China’s major ports rose about 1 percent to 115.4 million metric tons for the week ending May 23, while the spot iron ore price remains weak, below $100 per ton.

Opportunities

• Growth in China's manufacturing sector may have quickened slightly in May on an expected improvement in demand. China's official PMI is forecast to edge up to 50.6 in May, according to the median estimate from 10 economists. The forecast level inches further above the 50-point level separating a monthly expansion in activity from a contraction.
• The China National Petroleum Corporation expects to invest at least $2 billion in Peru over the next 10 years, after having recently bought Petrobras' assets in the country, a top CNPC executive said.
• Mexico’s congressional committees will start putting the final touches this week on legislation needed to implement a major overhaul of the country's energy sector, as President Enrique Pena Nieto seeks to put the centerpiece of his economic reform drive in place.
• New South African mining minister Ngoako Ramatlhodi has pledged to mediate in a crippling platinum strike now in its fifth month. He said the government needed to start treating the striking AMCU union with respect, according to local radio on Tuesday.

Threats

• Signaling growing industry opposition to the Obama administration’s forthcoming proposal to curb carbon emissions from power plants, the U.S. Chamber of Commerce issued a report Wednesday warning that the climate-change rule could cost the economy tens of billions of dollars in lost investment and millions of jobs. Although the exact size of the proposed reduction has yet to be announced, the chamber’s report estimated that such a rule could result, on average, in a drop of $51 billion in economic output a year and 224,000 fewer jobs every year through 2030, with the Southeast feeling the biggest pinch.