Energy and Natural Resources Market Highlights (week ending 2/15/2010)

Energy and Natural Resources Market

Inflows into commodity index tracking funds were strong in January after some slippage in December. This suggests that appetite for commodities exposure did not evaporate in January despite volatile markets.

Strengths

• In the U.S., domestic steel capacity utilization increased to 67.3 percent for the week ending February 6, from 66.9 percent in the prior week and production increased 63 bps to 1.6 million net tons.
• In its January market report, the International Energy Agency increased its estimate for world crude oil demand in 2010 by 170,000 barrels a day to 86.5 million barrels a day. This implies a gain of 1.6 million barrels a day, or 1.8 percent, from 2009 levels, and is driven entirely by emerging and developing economies.
• China’s coal imports more than tripled in 2009 to 130 million tonnes from a year earlier.
• Chinese auto sales were more than double last year's levels, with total sales surging to a monthly record of 1.66m units in January.
• Iron ore shipments from Australia’s Port Hedland, the world’s largest bulk exporting port, rose to 15 million metric tons in January from 14.9 million tons in December.
• China’s electricity demand in January was 40.1 percent higher year-over-year and up 2.7 percent from December, according to the National Energy Administration.

Weaknesses

• China’s imports of iron ore fell 25 percent in January to the second lowest in a year on record prices.

Opportunities

• The European Union appears to have reached a tentative agreement to aid Greece with its debt overhang. The announcement of this tentative agreement appears to be stabilizing the Euro against the U.S. dollar.
• Vale SA, the world’s biggest iron-ore producer, said it will “struggle” to meet demand for the steelmaking raw material this year as China’s economy expands.
• Anglo American Plc expects coking coal contract prices to rise after weeks of heavy rain in Queensland state cut output by as much as 10 million metric tons, the Australian newspaper reported.
• The China Electricity Council (CEC) said that it expects power generation and consumption will remain at a very high level in the first half of 2010 and it is difficult to change the tight coal supply situation in the short term. China's coal for power generation was 1.4 billion tons in 2009. According to market observers if the electricity consumption rose by 9 percent, the coal consumption would reach around 1.66bln tons, up 6 percent over 2009.
• Korean steelmaker Posco said that, considering the economic recovery, it may increase throughput by 22 percent this year and stainless steel production may rise to 1.80 million tonnes from 1.47 million tonnes last year.

Threats

• OPEC compliance with oil production quotas slipped to 53 percent in January, down from 56 percent in December, led by Angola and Venezuela.
• The Central Bank of China raised the bank reserve requirement ratio another 50 basis points this week marking the second increase this year.