Energy and Natural Resources Market Notebook (2010-05-10)
Strengths
- Russia’s January to April oil output reached 165.3 million tonnes, which was a 3.1 percent growth over the same period of last year; while the gas production soared 20.4 percent year-over-year to 237.9 billion cubic meters.
- Prices for coal shipped from South Africa’s Richards Bay rose to the highest in almost 18 months. Export prices gained $4.95, or 5.5 percent, to $95.75 a metric ton in the week through April 30, according to HIS McCloskey.
Weaknesses
- Base metals fell sharply in trading this week as the Greek bailout plans announced over the weekend failed to soothe investors concerns. Further tightening in China also clouded the outlook for the world's largest commodity consumer.
- Crude oil prices fell 12 percent this week on de-risking related to instability in the eurozone and continued monetary tightening measures in China.
- According to the HSBC China PMI, Chinese manufacturing decelerated in April from March. The index fell to a six-month low of 55.4 in April, from 57 in the prior month. HSBC's chief economist attributed the slowdown to tightening measures made in an effort to cool the overheated economy.
Opportunities
- Centennial Coal Co., an Australian producer of coal used in steelmaking, says global supply remains “fragile” and predicted contract prices will rise in the second quarter.
- Glencore International is studying a merger with Xstrata to create a mining and trading group worth 55 billion pounds ($84.5 billion), a source close to the deal said. "Glencore is working on a potential merger with Xstrata, and both sides have hired banks as advisers," the source told Reuters, adding that a deal was not imminent and would probably be "months away."
- U.S. steelmakers may raise output by one-third this year as the economy begins to recover, Nucor Corp. Chief Executive Officer Dan DiMicco said. DiMicco became chairman of the American Iron and Steel Institute on May 2. The nation’s steel capacity utilization rose to 73 percent as of April 24 from 41 percent a year earlier, according to the group’s data. The U.S. now imports 20 percent of its finished steel. The increasing volume is a “disturbing” trend, DiMicco said.
- Standard & Poor’s started its World Commodity Index this week, the first index to consist only of futures contracts traded outside the U.S., the company said. The index comprises 22 commodities covering energy, metals and agriculture, S&P said. The raw materials, listed on eight exchanges including the London Metal Exchange and Tokyo Commodity Exchange, are traded in six different currencies. Brent crude and gasoil traded on ICE Futures will make up a combined 73.8 percent of the index’s weight. Copper on the London Metal Exchange has the third-largest weight at 3.8 percent.
- JFE Steel Corp. may spend as much as 200 billion yen ($2.16 billion) over the next three to four years for concession rights to coal and iron ore mines in Australia, Brazil and other countries, Nikkei English News reported.
Threats
- Shares of mining giants BHP Billiton and Rio Tinto tumbled this week after the Australian government proposed a new 40 percent tax on the booming profits of resource companies. Starting in 2012, the tax would help pay for infrastructure spending and retirement funds.
- Copper supply may outpace demand by 578,000 metric tons this year and 243,000 tons in 2011, the International Copper Study Group said. The surplus was 195,000 tons last year, it said.
- Australia's new mining tax claimed its first casualty on Tuesday when iron ore explorer Cape Lambert Resources Ltd scrapped a project it said could have been worth around A$400 million ($371 million). Cape Lambert had planned to develop a mine in west Australia's Pilbara region, where Rio Tinto, BHP Billiton and Fortescue Metals Group produce hundreds of millions of tonnes annually.
