Energy and Natural Resources Market Cheat Sheet (May 2, 2011)
Strengths
- U.S. petroleum demand remains strong across the barrel, with April-to-date diesel and jet fuel demand running higher year-over-year by 4.75 percent, while gasoline demand remains slightly higher year-over-year.
- Statements from two major cable companies offered relatively bullish implications for copper demand. LS Cable, a Korean wire and cable maker, stated this week that due to rising cable demand, it may have to increase its copper purchases by as much as 10 percent. The French cable company Nexans stated that its first quarter sales had risen by 13 percent year-over-year, supporting robust demand from the energy and auto sector.
- Preliminary U.S. trade statistics suggest steel imports in March totaled 2.22 million tons, up 19.3 percent year-over-year and the highest level since October 2008.
- China’s National Development and Reform Commission (NDRC) has met with leading producers in an attempt to stabilize spot coal pricing, according to the China Coal Times. Prices have jumped to Rmb 815 per ton at Qinhaungdao, up 5 percent since the end of March. It has been suggested that price ceilings will be introduced if coal prices continue to surge. We note this was not effective in 2008, with the government having limited ability to directly control coal prices outside of managing demand.
- Chrome ore imports into China marked a new monthly record, with an increase by 38 percent month-over-month and 14 percent year-over-year to 960,600 tons in March.
Weaknesses
- The Japan Aluminum Association reported a decline of 8.5 percent in March in rolled aluminum products as shipments were impacted by the earthquake.
- JX Nippon Oil and Energy plans to process 21 percent less oil in May year-over-year after last month’s earthquake closed two refineries.
- China’s central regions of Hunan, Jiangxi and Chongqing face tight electricity supplies after thermal coal stockpiles held by local power plants fell to nine days of consumption. Power supplies were also tightened because of lower water levels in reservoirs feeding hydropower stations.
- House prices continued to fall in February, according to the Case-Shiller Index of 20 residential property values in 20 cities, which is near a six-year low.
- The Nuclear Regulatory Commission reported that U.S. nuclear power output fell to the lowest level in more than 10 years after storms ripped through the South, knocking out power to the Browns Ferry plant in Alabama this week.
Opportunities
- Reuters stated that sources inside Saudi Arabia have been surprised by the strength of crude demand from emerging market economies such as China and, as a result, foresee the country having to produce more than 9 million barrels going forward. Saudi Arabia may have to invest more to expand its production output.
- The NDRC said this week that China has restricted new rare earths, minor metal and some base metal smelting projects, reiterating its plan to curb capacity and protect the environment. Expansion of existing smelting and exploration operations has also been restricted (including molybdenum and antimony tin).
- The Ministry of Agriculture, Forestry and Fisheries said that Japan is seeking to buy 336,518 tons of milling wheat from the U.S., Canada and Australia in a tender.
- Coal India announced that it is seeking bids to import coal under long-term arrangements, as production growth is likely to face constraints in the coming years and demand is likely to be strong.
Threats
- Libyan rebels said they won’t be producing crude for at least another month because they still need to repair the oil fields which were damaged in the fighting that took place this year.
- Power failure knocked refineries offline in Texas this week, which sent gasoline prices rallying. The affected refineries represented roughly 5 percent of U.S. capacity.
- The Asia Development Bank warned last week that Asian output growth could be cut by up to 1.5 percent if global food and crude prices persist for the rest of the year.
- Russia’s government will cancel the preferential export tax for three large oil deposits beginning May 1, forcing TNK-BP, Surgutneftegaz and Rosneft to pay full export duties for their oilfields.
- The USDA reported that floods in the U.S. Midwest have closed 16 locks on the upper Mississippi, Ohio, Kaskaskia and Arkansas Rivers, impeding grain transportation. Rail shipments were also disrupted in some areas as heavy rains swamped tracks this week.
