Energy and Natural Resources Market Cheat Sheet (April 4, 2011)
Strengths
- Japan’s shipments of rolled-aluminum products increased 2.3 percent year-over-year in February amid strong demand for new housing and construction, the Japan Aluminum Association said. Supplies to domestic and export markets climbed to 168,092 metric tons last month, from 164,237 tons a year earlier, the group said.
- After a week’s lull, U.S. weekly steel output has returned to its upward trend. The latest release from the American Iron and Steel Institute shows that crude output rose 1.5 percent week-over-week to 86.9 million tons per year, 14 percent above November’s nadir. With the latest Platts assessment for U.S. Midwest hot rolled coil (HRC) rising to $975 per ton, up 65 percent from November’s lows, confidence in the economic recovery continues to flow through the sector.
- The Platts iron ore assessment (62 percent Fe) was up $5.50 to $175 per metric ton this week. The recent run up in price from a year-to-date low of $165 per metric ton in the middle of March is being attributed to mills running low on Australian fines inventories and traders holding back cargoes in anticipation of higher prices. Higher Chinese steel prices have also likely supported the rise in spot iron ore prices.
- The latest data from the International Air Transport Association (IATA) showed a substantial increase in air traffic volumes despite unrest in the Middle East-North African region curtailing air travel. February 2011 showed year-over-year increases of 6 percent passenger demand and 2.3 percent cargo demand with the political unrest in the Middle East estimated by the IATA to have cut international traffic by about 1 percent.
- The Wall Street Journal reported U.S. corn futures soared to their highest prices in more than two and one-half years as a decline in inventories reported this week continued to drive concerns about supply. The U.S. Department of Agriculture sparked the rally in corn on Thursday when it reported inventories as of March 1 were 6.52 billion bushels, down 15 percent from a year earlier and 2.7 percent below analyst. The tighter-than-expected inventories provided new evidence that high corn prices aren’t slowing demand for dwindling supplies.
Weaknesses
- Shares in South Africa-listed platinum miners tumbled on Monday as neighboring Zimbabwe turned up the heat on foreign mining firms and gave them six months to sell majority stakes to local black investors, according to a release in the Government Gazette on Monday. The release also said companies had 45 days in which to submit details of how they planned to transfer ownership.
- Copper output from Chile, the world’s largest copper producer, decreased 18 percent month-over-month and 6.6 percent year-over-year in February to 394,452 million tones, according to the Chilean statistics institute INE. INE indicated that the fall in production was due to lower ore grades and problems with primary crushing equipment at Codelco’s Gabriela Mistral mine.
Opportunities
- China approved an emergency coal reserve plan which will build up 5 million tons of coal this year, and will ensure the supply to thermal plants if any natural disaster or accident threatens to disrupt the supply. China’s 10 major mining companies, including Shenhua Group and China National Coal Group, have been chosen to build this reserve.
- The Chinese government has announced new targets by which it aims to reduce energy usage and carbon emissions by 4 percent per unit of economy output this year. These cuts are part of China’s plan to reduce energy consumption and carbon emissions by 18 percent per unit of GDP over the next five years. China has already completed its five year plan to reduce energy use per unit of economy output by 20 percent since 2005.
- President Obama outlined his plan for reduced dependence on oil this week. In his speech on energy security, President Obama called for reducing dependence on oil and shifting towards renewable sources of energy, especially natural gas and biofuels. President Obama called for a one-third reduction in oil imports by 2025. He especially stressed increasing the usage of vehicles dependent on natural gas rather than oil as fuel. President Obama has already called for a new Clean Energy Standard by which the country aims to achieve 80 percent of its electricity generation from clean energy sources by 2035.
- “Copper will lead a rally in base metals this year as increased consumption in China reduces inventories to higher prices encourage stockpiling,” according to Brook Hunt. “Fundamentally, the market’s tight,” Julian Kettle, head of metals research, said in an interview, predicting that cash copper may average $9700 per ton this year compared with $7543 in 2010. Copper is expected to have a 570,000-ton shortfall this year as China’s demand grows 6 percent, according to Brook Hunt.
- China Securities Journal has said that China is expected to produce 513 million tons of coking coal in 2011, while total consumption is expected to be at 569 million tons.
Threats
- Russia may raise the antitrust limit on ownership in companies involved in extracting the country’s natural resources. Legislation has been prepared that will allow investors to buy as much as 25 percent in a company involved in resource-extraction without anti-trust approval or the permission of a commission on foreign investment, Prime Minister Vladimir Putin told the Cabinet. The current limit without prior approval is 10 percent, he said. The proposal will be sent to lawmakers in Russia’s Duma for approval in April.
