Energy and Natural Resources Market Cheat Sheet (July 11, 2011)
Strengths
- Shipments from Richards Bay Coal Terminal on South Africa’s east coast rose 19 percent in June year-over-year. China’s imports from Richards Bay increased 18 percent to 3.14 million metric tons during the same period.
- Iraq exported 2.273 million barrels of oil a day in June, the most since the 2003 U.S- led invasion of the country, according to the State Oil Marketing Organization.
- Copper rallied this week as the market was hit by disruptions on the mine supply side. Production at Collahuasi copper mine, the second largest in the world, has reportedly fallen to 30 to 40 percent of capacity over the past couple of days due to ongoing winter weather conditions.
- In aluminum, the spreads have continued to tighten with the six-month backwardation rising to $30 per ton and the SHFE/LME flat price spread rising to $236, the highest since August 2010.
- Wheat futures rebounded from multi-month lows this week on concerns that dry conditions in Europe, which represents nearly 20 percent of global wheat exports, will impact the spring crop and indications of a smaller-than-expected yield for the winter crop harvest.
Weaknesses
- China’s hydropower output fell 2.9 percent year-over-year to 51.1 terawatt hours in May, reflecting the first decline in 12 months, according to the National Development and Reform Commission.
- Tighter monetary conditions by India’s government are beginning to affect rate-sensitive segments of the economy such as discretionary consumption and investments. Fixed capital formation grew by a mere 0.4 percent in the first quarter of 2011 compared with an increase of over 14 percent in 2010.
- Turkey’s chrome ore exports fell 8 percent month-over-month to 133,935 tons in June due to a decline in shipments to China, which were down 32 percent month-over-month to 86,234 tons.
Opportunities
- Indonesia, the world’s third-largest cocoa producer, may see this year’s output fall to its lowest since 2004, according to the Indonesian Cocoa Association.
- The global 2011/12 rapeseed harvest is likely to fall to a three-year low of 59.08 million tons, down from 59.37 million tons in the previous season, according to the Hamburg-based oilseeds analysts Oil World.
- Vale sees no slowdown in demand from China as the country seeks to build 36 million low-income houses in the next five years, CFO Guilherme Cavalcanti said. The country will continue leading global consumption of iron ore as it invests in new dwellings and infrastructure, Cavalcanti said in a Bloomberg Television interview. According to him, difficulties in bringing new projects to the production stage will cause a demand-supply imbalance lasting six or seven years.
- The Latin American Iron & Steel Institute (Ilafa) slightly raised its outlook for the region's apparent steel consumption in 2011, as a result of improved market sentiment. Steel Business Briefing has reported that Latin America's apparent steel consumption is expected to increase 7.9 percent this year from 2010, reaching about 62.9 million tons. In March, the group predicted a 7.1 percent hike.
Threats
- Russia’s raw-sugar import duty is expected to be $140 per metric ton in August, a 65 percent rise from July, reported the president of the country’s Sugar Producers Union.
- BHP Billiton recently announced a major capex increase at its Worsley Alumina operations in Australia, with project costs having risen by 58 percent to $3 billion.
- According to a report by Luo Bingsheng, deputy party secretary of the China Iron & Steel Association, profit margins at 80 of China’s large- and medium-size steelmakers fell to 2.91 percent in the first five months on surging iron ore prices. Iron ore prices may drop in the second half on declining demand, according to the report.
