Energy and Natural Resources Market Cheat Sheet (August 2, 2011)

Energy and Natural Resources Market Cheat Sheet (August 2, 2o11)

Strengths

• June global steel production rose 1.7 percent month-over-month to a daily record and an annualized 1.55 billion tonnes, with China's output up 2.8 percent month-over-month, according to WorldSteel data. Total global output rose 8 percent year-over-year in June to 127.7 billion tones.
• Indian oil demand increased year-over-year by 57 thousand barrels per day (1.9 percent) in June to 3.146 thousand barrels per day while India's crude oil imports came in at a record high of 3.179 thousand barrels per day.
• According to the China Coal Industry Association (CCIA), in the first half of the current year, China's coal output amounted to 1.77 billion tonnes, up 12.7 percent compared to the same period of 2010.
• Chinese official (CSSC) stainless steel production hit an all-time high of 3.13 kilotonnes in the second quarter of this year, up 9 percent year-over-year. Total first-half output was 6.2 million tonnes, up 13.5 percent year-over-year. Meanwhile, U.S. stainless steel fell 25 percent quarter-over-quarter in April–June, with first-half output falling 1.8 percent year-over-year to 1.17 million tonnes.

Weaknesses

• Analysts at Macquarie noted there remain little signs of life in the U.S. construction sector, with the American Institute of Architects Architecture Billings Index (ABI) falling for the third consecutive month. At 46.2, the index suggests a contraction in activity and has now hit the lowest point since June 2010. Historically, the ABI has been a key leading indicator for the non-residential construction sector, and the lack of design activity suggests little pickup in steel purchases in 2011.
• Chilean copper production fell close to 9 percent year-over-year in June to 426.5 kilotonnes, bringing first-half output to 2.57 million tonnes, down 2.2 percent year-over-year. Meanwhile Peruvian output was 500 kilotonnes in the first half of 2011, down 2.4 percent year-over-year.
• The latest International Air Transport Association (IATA) data for June pegs the growth of passenger air traffic at 4.4 percent, but freight traffic declined for the second straight month as the disruptions from the Japanese earthquake continue to weigh.
• Norsk Hydro is cutting jobs and capacity at its operations in Spain and Portugal because of lower demand from builders, said CEO Svein Richard Brandtzaeg.

Opportunities

• Bloomberg News reported that major power plants in China held a total of 65 million tonnes of coal stockpile, equivalent to 16 days of coal usage. The China Electricity Council has said that China’s power demand may grow by 12 percent this year to 4.7 trillion kilowatt hours.
• Demand for physical gold in China may exceed consumption in India by the end of this year, said Chuck Jeannes, CEO of Goldcorp. While global demand is advancing on concerns about financial turmoil in the U.S. and some European countries, consumers in China are buying larger amounts of the metal as an inflation hedge, Jeannes said. Demand for gold in both China and India may help lift the price of gold to $1,700 an ounce by the end of the year, said Jeannes.
• India may become the world’s second biggest steel producer in four to five years and may have an output capacity of 150 million tonnes by the year ending March 2018, the Steel Secretary said.
• Hot weather in the U.S. corn belt is likely to reduce crop yields for the world's top exporter to as low as 155 bushels per acre, down from around 158 bushels estimated by the government, an industry official said.

Threats

• Australia’s planned carbon tax may reduce the value of the coal industry by about A$8 billion as producers bear higher costs, according to Wood Mackenzie. “This is an average of a 4 percent reduction in NPV of coal companies’ Australian portfolios, said a researcher at Wood Mackenzie.
• Namibia plans to raise the corporate tax rate on mining companies other than diamond producers in the next financial year, Finance Minister Saara Kuugongelwa-Amadhila said. The country plans to raise the tax on mines other than gem operations to 44 percent from 37.5 percent, Kuugongelwa-Amadhila said on state radio. Diamond mines are taxed at a 55 percent level, she said. A capital gains tax will also be imposed on the sale of mineral rights or operation.
• South African coal miners who are members of the National Union of Mineworkers and Solidarity have gone on strike over current pay negotiations.