Energy and Natural Resources Market
Strengths
- HSBC’s measure of China’s manufacturing Purchasing Manager’s Index (PMI) for September increased to 52.9, the highest level in five months, from 51.9 in the prior month. The PMI figure, as well as other recent economic data out of China, suggests that economic growth in the country might be re-accelerating following signs of softening after tightening measures were implemented earlier in the year.
- Copper prices hit a 26-month high of $3.65 per pound this week.
- Crude oil prices gained 6.6 percent for the week on further talk of quantitative easing from the U.S. Federal Reserve and a bullish weekly inventory report.
Weaknesses
- Natural gas futures prices slid 2 percent this week as industry supply and demand data continue to indicate surplus inventories and production.
- Steel output in Japan, the world’s second-biggest producer, will probably drop 1.5 percent next quarter because of slowing demand from carmakers, according to the nation’s Ministry of Economy, Trade and Industry.
- Consol Energy said Friday it will lay off 231 workers at two mines. The Pittsburgh company said it will lay off 135 hourly and 36 salary workers at the Emery Mine near Price, Utah, because of higher production costs, relative to the local region, and market conditions for coal. More than 250,000 tons of coal at the mine remain to be sold. Consol Energy said it will also lay off 60 employees at Mine 84 near Washington, Pa., because of the high cost structure of the mine versus current market prices for coal being produced there.
Opportunities
- In a recently published report, oil analysts at Bank of Montreal estimate that the Eagle Ford shale play in South Texas holds recoverable resources of roughly 8.8 billion barrels of oil equivalent (boe) and that production could approach 1.4 million boe per day by the year 2015.
- At an industry conference in Dalian, China, Rio Tinto indicated that Chinese ore demand this year may exceed last year’s level as it continues to run at full capacity. Further, Vale said that it expects Chinese steel demand to pick up in late 2010 or early 2011.
- China’s coal use will probably grow by more than a third in the next five years, according to Peabody Energy Corp., the largest U.S. coal producer. China’s current coal consumption of 3.3 billion tons a year will likely rise to 4.5 billion tons.
- State-owned China National Nuclear Corp (CNNC) is scheduled to spend Rmb800 billion, or US$117.6 billion, on the development of nuclear industry by 2020 (CNNC’s nuclear investment is expected to reach Rmb500 billion by 2015), according to the company.
- The International Energy Agency said on Friday it anticipated upward pressure on oil prices in the second half of 2011 due to a projected decline in oil stocks. The agency also said the most recent round of sanctions imposed on Iran by the United States and the European Union was leading to significant delays for Iran’s oil and gas developing projects. A senior oil analyst for the agency’s oil and industry markets division said that if the global economy grew at an annual rate of more than 4 percent in the first half of 2011, as projected by the International Monetary Fund, oil supplies could start to be squeezed.
Threats
- According to the Wall Street Journal, BHP Billiton and Rio Tinto are looking at revising or postponing their proposed $116 billion iron ore joint venture until the Australian government sets the terms of its planned mining tax.
- The youth wing of South Africa’s ruling African National Congress said it will spend the next two years seeking support for the nationalization of mines after succeeding in putting it on the party’s agenda for debate.
- The Department of Energy and Climate Change (DECC) forecasts U.K. oil production is likely to fall to 1.03 million barrels per day (bpd) by 2015, down from 1.39 million bpd produced last year, which was the lowest output since 1978. Britain’s oil and gas output has steadily declined over the last decade, peaking in 1999, as North Sea fields have depleted.
