Energy and Natural Resources Market (December 27, 2010)
The American Institute of Architects (AIA) reported that the Architecture Billings Index (ABI) registered a 52.0 result in November, up 3.3 points from 48.7 in the prior month. The ABI has returned to expansion territory and reached the highest score since 2007 which could indicate that demand for non-residential building construction is headed in the right direction. The ABI is often used as a predictor of non-residential construction activity, specifically the development of offices, warehouses, apartments and other buildings. The index typically represents a 9- to 12-month lag between billings and construction spending.
Strengths
- Copper prices hit record highs on the LME and Comex this week on supply and demand news. Data from China showed a large monthly increase in Chinese imports of refined copper in November. Also, concern over supply widened after Collahuasi declared force majeure following a structural failure at a port loading facility in Chile.
- Refined-copper imports by China increased for the first time in three months. November imports were 232,298 metric tons, according to the General Administration of Customs, 37 percent higher than 169,897 tons in October.
- China, the world’s largest energy user, reduced net diesel exports to the lowest level in 22 months in November as the nation battled a domestic shortage. China exported 90,000 metric tons more than it imported last month, the lowest since January 2009, customs data showed in Beijing this week.
- World refined-copper consumption exceeded production by 436,000 tonnes between January and September this year, the International Copper Study Group (ICSG) said in its latest monthly bulletin. World refined copper output in January to September reached 14.242 million tonnes, while consumption amounted to 14.678 million tonnes, the Lisbon-based ICSG said. "During the first nine months of 2010, world apparent usage grew by 8 percent – approximately 1.09 million metric tonnes – compared with...the same period of 2009, principally owing to recovery from weak 2009 usage levels in the European Union (EU), Japan and the United States," it said in a release. "The global market balance for the full-year 2010 is likely to show a significant deficit owing to stronger than anticipated demand growth." The ICSG also said that for the first nine months of the year, Chinese apparent usage increased by a more modest 4.5 percent from very strong 2009 levels.
Weaknesses
- Coal India Ltd. has announced it will fall short of its production target for the current financial year by 3.5 percent and could miss targets by 8 percent in the following year. Environmental permitting issues may cause production to fall short 39 million tonnes versus planned production of 486.5 million tonnes in 2011, with this year's production target of 460.5 million tonnes likely to be missed by approximately 16 million tonnes.
- China reduced overseas purchases of liquefied natural gas in November by 12 percent from a month earlier as it cut electricity output to meet a national energy efficiency target. Imports fell to 727,575 metric tons last month, according to final trade data published by the Beijing-based General Administration of Customs.
Opportunities
- The company formed by the union of Bumi Resources and Berau Coal Energy is looking to acquire coal mines around the world and become a global giant, according to investor Nathaniel Rothschild. Mr. Rothschild said the combined entity aims to raise cash from the likes of Chinese sovereign wealth fund China Investment Corp., which bought 1.9 billion dollars of Bumi Resources’ debt last year. Mr. Rothschild told Dow Jones Newswires in an interview that “this could become a global coal company, as opposed to an Indonesia-focused coal company.”
- China will boost coal imports from Russia to 15 million metric tons a year in the next five years, Interfax reported, citing Russia’s ambassador to China, Sergei Razov. The volume may rise to at least 20 million tons a year over the subsequent 20 years, the report cited Razov as saying in Beijing yesterday. China currently imports 12 million tons a year of the fuel from Russia, according to the report.
- South African energy group Sasol said on Monday it would pay $1.05 billion for a 50 percent stake in Canada's Talisman Energy Farrell Creek shale gas assets in British Columbia.
- Europe's second-largest copper producer, KGHM, plans to increase its copper output by 27 percent to 700,000 tonnes annually by 2018, according to KGHM's chief executive Herbert Wirth. Wirth also stated that the output may rise to 800,000 tonnes if the miner manages to take over a rival. This year the copper miner, which has had high hopes for raising production after taking over the Canadian company Abakus earlier in 2010, aims to produce 546,000 tonnes of copper in 2010.
- Nearly 40 percent of power generators in China’s Hubei province are shut due to lack of coal, however stockpiles at major ports are high. The supply disruptions are due to weather-related transportation issues and government-mandated price controls.
Threats
- South Korea's POSCO, the world's third-largest steelmaker, said it will keep domestic steel prices unchanged in the first quarter of 2011 from this quarter despite a rise in raw materials costs, reflecting stagnant demand.
- In the U.S., drivers in many states are paying at least $3 a gallon for regular gasoline, and analysts don’t expect any relief soon. That’s because crude oil has hovered between $83 and $89 a barrel since Thanksgiving. The national average for regular gasoline was $2.981 a gallon Monday, according to a survey by AAA, Wright Express and the Oil Price Information Service. That’s about the same as a week ago and more than a dime higher than a month ago. A year ago the average was $2.59 a gallon.
- The number of young recruits hired to replace aging petroleum engineers has declined over the last 10 years, as many college graduates choose managerial positions over engineering jobs and other field assignments, said Andrew Gould, chairman and chief executive officer of Schlumberger. “The talent gap is still a factor that limits the expansion of the oil and gas exploration industry,” he told a conference in Dhahran, Saudi Arabia, Bloomberg reported.
