Energy and Natural Resources Market Diary (June 14, 2010)
Strengths
- Despite concerns of slower growth in Europe and China, the price of crude oil reached $74 (up 3.5 percent) this week on signs that economic growth continues to support crude demand.
- Better economic data from developed countries (mainly OECD countries) sputted the International Energy Agency (IEA) to revise up its 2010 global oil demand forecast by 60,000 barrels per day to 86.4 million barrels a day.
- The American Iron & Steel Institute reports that for the week ending June 5, steel utilization rates increased to 73.8 percent versus the prior week of 73.0 percent. U.S. raw steel output was up 63 percent from a year ago to 1.79 million tons.
- As a sign of strong demand for copper, charges for spot concentrate treatment and refining charges have fallen global to single digits from around $10 a pound in April.
- The price of copper reached $2.90 a pound this week (up 3 percent) this week after falling 9 percent the prior week.
Weaknesses
- This week’s Steel Index survey suggests that mills are seeing a weaker demand environment across North America, Europe and Asia. More than half of respondents (58 percent) said they were expecting prices to decline in the next three months.
- After reaching a record level in April, China’s crude oil import numbers fell sharply to 4.2 million barrels per day in May. This is down from the prior year-to-date average of 4.62 million barrels a day.
Opportunities
- The five-week period ending in May saw the most aggressive net selling of metals and mining stocks in four years, according to net flows from UBS. Typically, a selloff of this intensity is a strong contrarian signal that the worst has been priced into mining equities over the short- to intermediate-term.
- Metals Bulletin reports that China has ordered 37.5 percent more of steel capacity be shut down by the end of September. This could support global pricing going forward.
- Despite the recent collapse in copper prices, Codelco, the world’s top largest stated that its multibillion dollar investment plan over the next few years remains intact.
Threats
- Given excess supply in the housing market and rising delinquencies, Goldman Sachs suggests that the Case-Schiller Index (a composite of 20 housing markets across the country) could fall by three percent over the next year and another one percent over the following year, which would weigh on economic growth.
