Roundup: Energy and Natrual Resources Market

Energy and Natural Resources Market

Since 1999, oil prices have consistently surpassed consensus price forecasts made at the start of the year. On average oil prices tend to overshoot analyst forecasts by 30 percent. If this happens again in 2010 it would imply oil prices averaging $98 per barrel.

Strengths

• The U.S. Energy Information Administration (EIA) reported a weekly natural gas inventory drawdown of 266 billion cubic feet, the second largest volume in its history.
• Codelco says it will boost capital spending in 2010 by 12 percent to $2.3 billion in 2010 as part of its drive to boost output at its aging portfolio of mines.
• Over the past month, the U.S. molybdenum price is now up 20.5 percent. Finally, it’s also worth mentioning that cobalt is also currently at a 52-week high of US$23.00/lb (up 7.0 percent relative to last week).
• The China Iron & Steel Association (CISA) reported preliminary steel production for the month of December, indicating that China produced 49.4 million metric tons, or 1.59 million metric tons per day, an increase of 30.7 percent over the year ago period and an increase of 0.9 percent month-over-month. For 2009, Chinese production totaled 568 million metric tons, an increase of 13.3 percent over 2008.
• Chinese trade data indicated that imports of iron ore increased by 21.7 percent month-over-month for December.
• The U.S. overtook Russia as the world’s largest natural gas producer last year, according to the latest EIA/Department of Energy data.
• Platinum advanced to a 17-month high on outlook for auto demand in China.
• Rio Tinto’s iron ore output jumped 49 percent in the December quarter, reflecting surging demand from Chinese steelmakers.

Weaknesses

• Crude oil futures slid 5.7 percent this week to near $78 per barrel as weekly inventory data in the U.S. indicated rising inventories and weak demand.
• Gold imports by India, the biggest buyer, dropped 18 percent last year as record prices lowered demand from jewelers and housewives, according to data from the Bombay Bullion Association Ltd.

Opportunities

• Severstal and ArcelorMittal have notified the United Steelworkers union that idled steel and coke facilities in Ohio will be returning to production near the end of the 1Q10. The Severstal facility has the capacity to produce approximately 1.4 million tons of crude steel annually, with the ArcelorMittal coke battery having the capacity to produce 550,000 tons of coke per year. Increasing steel prices and demand is the reason Severstal cited resuming production at its steel making operation.
• Macquarie group said in a report that Maanshan Iron & Steel, China's sixth-largest steelmaker, has expressed worries that government prioritization of thermal coal for the country's railway network will limit metallurgical coal supply. When a similar situation arose in early-2008, Chinese domestic prices for premium coal rose above $200 per tonne.

Threats

• China raised its bank reserve requirement ratio by 0.5 percent. China’s measures to rein in lending may curb price gains in copper and aluminum on concern the move foreshadows higher interest rates that will limit demand in the world’s largest metals consumer.
• London Metal Exchange nickel inventories reached a new all time high of 161,550 tonnes and inventories of aluminum, copper, and zinc all continue to hover around their 52-week highs.