Energy and Natural Resources Highlights

Monday, February 1st, 2010

Energy and Natural Resources Market

Despite forecasts for record grain supply over the 2009 and 2010 growing season, the global grains stocks-to-use ratio is expected to remain below the historical average due to forecast growth in grain consumption.
Strengths

• Capacity utilization at U.S. steel mills has risen 1.5 percent to 65.6 percent in the last week, according to the latest American Iron and Steel Institute data. At 1.44 million metric tons, the total production was the highest since the end of October 2008 and represents 75 million metric tons per year on an annualized basis.
• Japan’s shipments of aluminum rolled products rose 9.1 percent in December, posting the first increase since September 2008.

Weaknesses

• Crude oil prices fell this week as the U.S. Dollar gained 1.4 percent and concerns about Chinese oil demand amidst the Chinese government’s tightening economic policy.
• Base metals prices plunged this week on fears of a slowdown in buying from China. Copper fell nearly 9 percent and zinc more than 10 percent.

Opportunities

• BHP Billiton announced that it will acquire Athabasca Potash for $320 million. BHP Billiton also raised offers on manganese ore to customers in China by as much as 17 percent, as global supply tightens and demand picks up.
• The queue of ships at Newcastle, Australia-the world’s biggest coal port-is near its longest level since before the financial crisis, and waiting times are at a one-year high. Figures published this week show 58 ships waiting on Monday, just shy of the pre-Christmas peak of 60, which was the longest queue since mid-2007. Average waiting times for vessels is 18 days, the Newcastle Port Corporation figures show.
• Bunge has sold its Brazilian fertilizer assets to Vale for $3.8 billion in cash to fill a war chest for agribusiness and sugar expansion and to attack its heavy debt burden.
• Russian steelmaker Severstal confirmed its intention to restart its 1.2-million-metric-ton-per-year facility in Warren, Ohio, during March.

Threats

• Australia’s government has not yet decided what recommendations it will adopt from a report proposing major tax reforms, possibly including a big increase in mining royalties, Prime Minister Kevin Rudd said this week.
• MySteel.net claims that Chinese hot-rolled coil prices have fallen 80 Chinese yuan per metric ton so far this week and that cold-rolled coil price is off 100 Chinese yuan per metric ton. Further declines are expected ahead of the Chinese New Year holiday.

Tags: American Iron And Steel Institute, Base Metals, Bhp Billiton, Capacity Utilization, China, China Copper, Chinese Oil, Coal Port, Crude Oil Prices, Debt Burden, Emerging Markets, Grain Consumption, Grain Supply, Manganese Ore, Metals Prices, Metric Ton, Million Metric Tons, Newcastle Australia, oil, Oil Demand, Steelmaker, Waiting Times, War Chest
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SWOT: Energy and Natural Resources

Sunday, December 13th, 2009

Energy and Natural Resources Market

Strengths

• In a preliminary update to its Medium Term Oil Market Report, the International Energy Agency raised its oil demand forecast for 2009 to 2014 by around 1.9 million barrels per day, compared to June’s report, on the basis of stronger assumed growth in gross domestic product.
• Chinese November power generation rose at the fastest pace in almost five years. Electricity output climbed by 26.9 percent year-over-year to 323.4 billion kilowatt-hours last month according to the National Bureau of Statistics.
• Cold weather led to a larger than expected storage draw in the U.S. pushing natural gas prices to $5.30 per million BTUs - their highest levels since the beginning of the year.
• Aluminum closed at a 14-month high in Friday trading, breaching the $1/lb mark to close 3.4 percent up at $2,240 per tonne.
• Iron ore shipments on the Great Lakes in November reached their highest level in 2010, as U.S. blast furnace utilization rates have risen. Shipments were up 27 percent to 4.15 million tonnes, according to the latest data from the Lake Carriers’ Association.

Weaknesses

• Chinese crude steel production fell 5.6 percent month-on-month in November to an annualized rate of 575 million tonnes per year, the lowest rate since June, according to NBS data.
• The Baltic Dry Index fell 11 percent this week.
• Crude oil fell 8 percent this week on a rising dollar and weak products inventory report from the U.S. Department of Energy.

Opportunities

• Industry publications are indicating that AK Steel has levied a 2nd price increase for steel products purchased in January. The company indicated that the price increase is in response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.
• First Quantum Minerals purchased BHP Billiton’s Ravensthorpe nickel mine in Queensland, Australia for $340 million. BHP Billiton had closed the operation in January 2009 due to nickel prices, and had previously indicated that the asset was available for purchase.
• Russia is considering an easing of mining laws designed to protect domestic producers because they’re deterring foreign investors and curbing development, Deputy Minister of Natural Resources Sergei Donskoy said. The government may streamline the approval process for foreign investors, give them tax breaks and increase compensation should the state decide to take back assets. The laws, which came into force in May 2008, cover deposits deemed to be “strategic.” They include resources of more than 50 metric tons of gold, 70m tons of oil and 500Kt of copper.

Threats

• China will impose provisional duties on some U.S. and Russian imports following anti-dumping and subsidy investigations, escalating a trade spat started in September. Flat-rolled electrical steel products from steelmakers including AK Steel, Novolipetsk Steel and Allegheny Ludlum, would attract duties of up to 25 percent, China’s commerce ministry said. The steel is used to make power transformers.

Tags: Advertisement Opportunities, Ak Steel, Baltic Dry Index, Bhp Billiton, Blast Furnace, Bureau Of Statistics, Carbon Steel Products, China, Cold Weather, Crude Steel Production, Emerging Markets, Gold, International Energy Agency, Kilowatt Hours, Lake Carriers Association, Market Strengths, National Bureau Of Statistics, Natural Gas Prices, Nickel Prices, oil, Oil Demand, Oil Market Report, Queensland Australia, Ravensthorpe Nickel, Steelmaking, Term Oil, Utilization Rates
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Rio Tinto/BHP Billiton at parity

Friday, December 19th, 2008

Yep, the share prices of the two mining giants have crossed. After suffering another sickening fall on Thursday, Rio shares (down 10 per cent) are now trading at £10.40, about 4p lower than BHP’s.

This is seriously embarrassing for Rio. After all, BHP’s abandoned bid was pitched at a ratio of 3.4:1.

Of course, the reason Rio is being dragged lower is debt. And Rio has a lot of it - $40bn to be precise, against a market value of $27bn.

The company says it will be able to meet its debt repayments ($8.9bn is due next September) and does not need a rights issue.

But the market doesn’t believe Rio, and the result is a sinking share price.

Since BHP walked away last week, Rio shares have fallen 58 per cent.

Related links:
No respite for Rio - FT Alphaville

Source

Tags: Alphaville, Bhp Billiton, Bid, Debt Repayments, Ft Alphaville, Giants, Lot, Parity, Reason, Respite, Rio 10, Rio Tinto, Share Price, Share Prices, Shares
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