Energy and Natural Resources Market Diary (June 21, 2010)
Strengths
- U.S. domestic steel mill utilization increased to 74.6 percent for the week ending June 12 versus 73.8 percent in the previous week. Quarter-to-date utilization has averaged 73 percent and year-to-date utilization 70.1 percent.
- U.S. industrial production rose by 1.2 percent month over month in May and is up 7.6 percent year over year. This was driven in part by strong output from utilities, although auto production also gained traction in the month, rising to an annualized rate of 8.02 million.
- China coal railings in January-May totaled 814 million metric tons, up 17.9 percent over the same period last year. Robust demand in downstream industries during those months and surging coal output contributed to the growth. Power consumption was up 22 percent year over year in January-May, and China coal output was up 20.6 percent.
- Natural gas futures prices gained 7 percent this week on forecasts of increased demand from hotter-than-normal weather and a reduction in the year-over-year inventory surplus.
Weaknesses
- Tokyo Steel Manufacturing, a large Japanese electric-furnace steel producer, reportedly cut prices by as much as 12 percent for July contracts, the first reduction in six months, as price competition with Asian mills intensified and costs fell.
- Copper imports by China declined for a second consecutive month in May amid ample domestic supplies and on prospects of weakening seasonal demand. The customs office said that shipments of copper and products were 396,712 metric tons in May. This is 9.1 percent below April’s 436,350 metric tons and 6.1 percent less than 422,670 metric tons a year earlier.
Opportunities
- Rio Tinto has announced that it will invest $469 million to build the Kennecott Eagle nickel and copper mine in Michigan's Upper Peninsula. Construction of the mine will begin this year and should be complete by 2013.
- An expert from China's National Development & Reform Commission has stated that the investment in high-speed railway construction will remain at around RMB 700 billion annually in each of the next five years, compared to RMB 600 billion in 2009, according to Antaike.
Threats
- The U.S. Army Corps of Engineers announced immediate suspension of the Nationwide Permit 21 program for surface coal mines in six states in the Appalachian region. The move is the latest step by U.S. authorities to crack down on mountain-top removal mining on concerns over the impact to valley streams and waterways.
- Interfax is reporting that the China State Council has announced that the government will not allow the construction of any new steel-making facilities before the end of 2011. Projects that received prior approval may proceed. It is estimated that China currently has the capacity to produce 700 million metric tons, with May data indicating production of 660 million metric tons on an annualized basis.
