Energy and Natural Resources Market (November 15, 2010)
Strengths
- West Texas Intermediate (WTI) oil prices climbed to their highest level in over two years Wednesday, buoyed by the U.S. Energy Information Administration (EIA) inventory report showing significant draws in all three major oil stock categories.
- Frontline, the world’s biggest supertanker operator, said it’s seeing “huge” demand for crude-oil imports from China, potentially reversing a slump that contributed to mostly unprofitable charter rates since June.
- OPEC raised its forecast for global oil demand in 2011 by 310,000 barrels per day. OPEC’s growth estimate for oil demand in 2011 is now 1.17 million barrels per day compared to 1.05 million barrels per day previously, but is still well below the EIA report at 1.44 million barrels per day and the International Energy Agency (IEA) report, which was at 1.22 million barrels per day in October.
- Gold imports by India increased 25 percent to 20 tonnes due to a surge in demand for jewelry during the Diwali festival, according to the Bombay Bullion Association.
Weaknesses
- China’s imports of copper in October declined 25.8 percent month-over-month to 273,510 million tonnes.
- Crude steel production in China dropped 3.8 percent year-over-year in October as the government imposed power restrictions to meet energy efficiency targets. Output was 50.3 million metric tons, according to data from the National Statistics Bureau.
Opportunities
- Analysts at Merrill Lynch aggressively upgraded price forecasts for base metals based on a combination of U.S. Federal Reserve QE and dollar debasement and emerging market demand. They forecast copper to average $5.10 per pound in 2011 and $5.44 per pound in 2012.
- According to Alcoa, China would like to curtail another 600,000 tonnes of aluminum smelter production before the end of 2010 to meet energy efficiency targets.
- Bloomberg reported that Coal India may bid for one of Massey Energy Company’s coal mines in the Eastern U.S.
- China has signed another long-term supply agreement, this time with Kazakhstan, according to a number of press articles. Kazakhstan will reportedly supply China Guangdong Nuclear Power Company with a total of about 63 million pounds of triuranium octoxide until 2020. There are no details on pricing, but this contract is slightly larger than the AREVA deal announced last week.
Threats
- China sold almost all the zinc on offer from state reserves at below-market prices in the latest auctions held in an attempt to curb price gains. The government sold 49,992.97 metric tons of the 50,000 tons on offer through auctions on November 9 at an average price of 19,511 yuan ($2,946) a ton, said the State Bureau of Material Reserve.
- China’s central bank raised lenders’ reserve requirements as cash from October’s larger-than-forecast $27.1 billion trade surplus threatened to add to the risk of asset bubbles and accelerating inflation. Reserve requirements will increase 0.5 percentage points from November 16, the People’s Bank of China said in a statement.
