Energy and Natural Resources Market Cheat Sheet (March 14, 2011)

Energy and Natural Resources Market Cheat Sheet (March 14, 2011)

Strengths

• The latest China Iron and Steel Association (CISA) high frequency crude steel production data suggest output in China reached an annualized rate of 698 million tons during February 21-28—a new all-time high. Over last month, as a whole, average crude steel output was running at a rate of 665 million tons per year. This follows a very strong ramp-up over the last four months, during which the country has added the equivalent of total Japanese production.
• Cotton surged the daily exchange limit to a record in New York on signs that demand is exceeding supplies before new harvests are available later this year. U.S. sales surged 56 percent from a week earlier to 403,341 bales in the week ended February 24 as shipments increased in China, Turkey, and Bangladesh, the U.S. Department of Agriculture said this week.
• Colombia's monthly oil output hit an historical record in February at 861,000 barrels per day, rising 13.4 percent from the same month last year, according to Colombia’s ANH (National Agency of Hydrocarbons). Petroleum production in February was up 2.6 percent from January.
• The U.S. National Federation of Independent Business' optimism index climbed to 94.5 in February, the highest since the recession began in December 2007.
• Global stainless steel production hit a new record at 30.7 million tons in 2010 after three years of decline with most of the growth coming from China, according to the International Stainless Steel Forum.

Weaknesses

• Since the outbreak of civil unrest in Libya in mid-February, oil and gas production in that country has fallen by an estimated 60-90 percent, says the Energy Information Administration (EIA).
• Copper imports by China, the largest consumer, tumbled 35 percent in February to the lowest level in more than two years as ample supplies weighed down local prices, making purchases unprofitable. Inbound shipments of copper and products dropped to 235,469 metric tons from 364,240 tons in January, said the General Administration of Customs website. That was the lowest level since January 2009, according to Bloomberg data.

Opportunities

• China reported it will offer support to regions in the country to accelerate development of wind and solar projects to reduce its reliance on oil. The country is seeking to build an additional 70 gigawatts of wind capacity by 2015.
• According to the Korean Iron and Steel Association (KISA), global output of crude stainless steel may gain 6 percent to 32.63 million tons this year. South Korean production of crude stainless steel increased 20 percent to 2.06 million metric tons in 2010.
• Rio Tinto may start production at India’s first diamond mine in 2016, said Andrew Davy, the project’s chief geologist. Rio Tinto is the sole owner of the $500 million Bunder project in Madhya Pradesh state in central India. The mine is expected to produce 27.6 million carats and drilling has indicated stone grades of 0.5 to 1 carat.
• Copper demand in China may grow by 7 percent this year on strong economic growth, said Jianxi Copper Co., as the country’s largest producer boosts output.
• New Indonesian coal regions must develop infrastructure to meet growing demand, says consulting firm Wood Mackenzie. The firm has said that Indonesia needs to address infrastructural issues at its new coal producing regions in South Sumatra and Wahau field. It believed that the new proposed projects could add up to 140 million tons of annual capacity, though some may not be able to clear regulatory hurdles.
• In order to diversify coal sources, India’s biggest coal importer Adani Enterprises is considering buying coal from the U.S. The biggest issue, according to the CEO, is the 32-day long voyage from U.S. to India. The Indian government estimates it may face a shortfall of 269 million tons of coal by 2021-22 as reported by Bloomberg news.
• China’s first gold mutual fund, Lion Fund Management Co. said it has won approval from the State Administration of Foreign Exchange to raise $500 million more to invest in gold-backed exchange-traded funds abroad.
• Supertanker owners are coping with the second-highest fuel costs on record by sailing ships at the slowest speeds in at least three years, reducing vessel supply and bolstering charter rates. The carriers moved at an average of 10.7 knots last month, about a knot slower than a year ago, according to data compiled by Bloomberg. The combination of what the industry calls ultra-slow steaming and violence in Libya, Africa’s third-biggest oil producer, more than doubled daily returns for owners to $29,647 since the end of February, according to the London-based Baltic Exchange, which assesses more than 50 maritime routes.

Threats

• Saudi Arabia is currently producing more than 9 million barrels per day, roughly 700 thousand barrels per day above the official supply in January. While this sharp increase seems to be a reaction to the recent collapse in Libyan output, some reports suggest that Saudi Arabia had already significantly increased production prior to the turmoil in Libya.
• On Monday, Ivory Coast President Laurent Gbagbo nationalized the nation’s two main cash crops, coffee and cocoa, according to state-run television.