Energy and Natural Resources Market Cheat Sheet (February 7, 2011)
Strengths
- Ukraine’s coal production rose 9.6 percent from a year earlier in January, the Coal and Energy Ministry said.
- The Journal of Commerce reported that U.S. steel imports rose by 47.2 percent on a year-over-year basis in 2010.
- Supply disruption fears due to cyclone weather activity off the coast of Australia pushed copper prices to record levels in London this week.
- Analysts at IHS Herold highlighted in a report this week that global coal mergers and acquisitions set a record in 2010 with $20 billion worth of deals.
Weaknesses
- The Indonesian Coal Mining Association said the country’s 2011 coal output may reach 320-330 million tons, below the target of 340 million tons.
- India’s domestic coal production will fall short of demand by 142 million metric tons in the year starting April 1, exceeding a previous estimate. Coal demand in the next financial year is expected to be 696 million metric tons, compared with domestic output of 554 million tons.
Opportunities
- China will have more difficulty feeding itself in the coming years as expanding demand, spurred by increased urbanization, strains resources, a state official said. From 2011-2015, more than half of the country’s population is expected to be living in cities or towns, creating additional demand of 4 million metric tons of grain, 800,000 tons of vegetable oil and 1 million tons of meat every year.
- The next annual coal-supply contracts between mining companies and Asian utilities, which run from April, are likely to set record prices, the Financial Times reported. This year’s estimates range from $130-$145 per metric ton, compared with $125 in 2008-09 and $98 in 2010-11.
- In an effort to fend off tough competition from Asian rivals and offset shrinking demand from domestic automakers, Japan's Nippon Steel Corp. and Sumitomo Metal Industries plan to merge. This would create the world's second-largest steelmaker. The deal comes as the industry grapples with surging raw materials prices, which have been exacerbated recently by floods in Australia.
- Reuters reported that Chinese oil company CNOOC will pay $1.3 billion for its second shale deal with Chesapeake Energy in the U.S. The company will buy a 33.3 percent stake in Chesapeake’s leasehold acres in northeast Colorado and southeast Wyoming for $570 million. CNOOC also agreed to fund 66.7 percent of Chesapeake’s drilling and completion costs until an additional $697 million is paid.
Threats
- Xstrata evacuated its 230,000 tons per year copper refinery—1 percent of global production—in Queensland, Australia in a precautionary move. Cyclone Yasi is expected to make landfall during the week.
- China's oil demand growth rate in 2011 may slow to half of last year. Despite the slowdown, it would still account for 40 percent of the 1.4 million barrels per day of global demand growth forecasted by the International Energy Agency (IEA).
- U.S. gasoline at the pump may rise 13 percent by May as crude oil in New York tops $100 a barrel and a recovering economy boosts fuel demand, according to analysts surveyed by Bloomberg News. The highest price for regular gasoline this year will be $3.50 a gallon, based on the median estimate of 14 analysts. Gasoline hasn’t reached that level since Oct. 6, 2008, according to AAA.
