Energy and Natural Resources Market Notebook (5/15/2010)
Strengths
- India’s steel consumption rose 9.6 percent to 4.14 million metric tons in April 2010 as a result of steady demand from sectors such as automobiles, white goods and construction.
- Key Chinese economic indictors for April remain robust, but suggest that the pace of growth is slowing. Industrial production growth edged slightly lower to 17.8 percent year-over-year.
Weaknesses
- Xstrata Plc, the world’s fourth-largest copper producer, said its North Queensland unit suspended its regional exploration program following Australia’s plan to impose a 40 percent mining tax. “We have decided to suspend exploration activities in North Queensland until there is greater certainty on the fiscal regime for future mining developments,” the chief operating officer of Xstrata’s Australian copper unit said.
- U.S. scrap prices have decreased by approximately 6 percent over the last two weeks to approximately $375 per long ton. Additionally, steel prices in China continue to ease lower on concern that government tightening efforts will slow demand. Rebar and hot-rolled coil prices have decreased over the past week by 3 percent and 4 percent, respectively.
- In its May report, the International Energy Agency revised down global demand estimates by 200,000 barrels per day. This is the first downgrade since the IEA started publishing its 2010 estimates back in July 2009.
Opportunities
- ArcelorMittal said it will raise European steel prices as much as 16 percent after an “overwhelming” surge in the cost of iron ore and coking coal. Prices may climb further in the third quarter if the euro continues to weaken, it said.
- New York metals consultants CPM Group forecast that investment demand for silver may surpass last year, when investors bought an estimated 210 million ounces. In its annual Silver Yearbook 2010, CPM projects that investors will purchase 214 million ounces this year.
- China's NDRC announced an increase in power tariff surcharges of 50 percent to 100 percent effective June 1 for energy-intensive industries, including steel, aluminum, zinc and ferroalloys producers. The news is bullish for aluminum as it means that price needs to fall less to see China move back to net importer status.
Threats
- Chile’s proposed mining tax increase may cost companies including BHP Billiton Plc, Xstrata Plc and Anglo American Plc an additional $1.2 billion in the next two years as Chile seeks to finance repairs following February’s major earthquake.
- Riot police were called in to clear blockades that effectively closed the Collahuasi copper mine in Chile for five days. The Collahuasi mine is expected to produce 535,000 metric tons of copper in 2010, or approximately 3 percent of global output. The mine operator – a consortium of Anglo American, Xstrata and Mitsui – has not determined when it will reopen the facility.
