Energy and Natural Resources Market Cheat Sheet (September 6, 2011)
Strengths
- The Global Resources Fund rebounded this week, driven by gains in the shares of energy, mining, and agricultural-related companies. Commodities were mostly up week-over-week with the average price of crude oil gaining 3.5 percent, copper up 2.7 percent, and the average price of corn up over 2.4 percent versus last week.
- The latest data for August indicates oil output in Russia hit a new post-Soviet high of 10.28 million barrels per day, up 220 thousand barrels per day on a year-over-year basis.
- Analysts at Macquarie Capital noted that mine mouth coal prices in China are reportedly rising in anticipation of a tight market at the end of the year, going into the winter. Prices in Northern Shanxi rose by RMB5-10 per ton, according to the China Coal Resource.
Weaknesses
- Data from Peru, the world’s second-largest copper producer, showed July output fell 5.6 percent year-over-year due to shrinking reserves and lower quality ore.
- In the U.K., the latest data from DECC indicates oil production in June was at its lowest absolute level since April 1978. At 1.075 million barrels per day, production is now lower year-over-year by 97 thousand barrels per day as technical problems in the Buzzard field aggravated in June.
Opportunities
- David Joyce, Rio Tinto’s managing director for iron-ore expansion projects, told delegates at the Africa Downunder conference in Perth, that global iron-ore, copper, and aluminum demand would double over the next 15 to 20 years. “To put this in perspective, the mining industry would need to mine, process and move more raw materials and minerals in the next 20 years than it has done in the past 10,000 years.” In the case of iron-ore, global supply would have to grow at a rate of 100 million tons each year, over the next eight years, to satisfy the demand growth, the Rio Tinto executive said.
- The New York Times wrote this week that after shutting down the oldest eight of its fleet of 17 nuclear reactors practically overnight, German power producers are nervous about power supplies this winter. The country is currently importing electricity from neighboring countries France and the Czech Republic which, ironically, generate much of their power from nuclear sources. Though Germany has made very good progress in terms of renewable sources, it still has plans to build 23 GWs of gas and coal fired plants by 2020 because it has limited capacity to store or transport renewable power. The issue is under control currently, but it’s being said that there may be blackouts if the nation sees days this winter without much wind or solar power, and neighboring countries need all their power.
Threats
- Deutsche Bank expects base materials are likely to come under pressure following fresh moves in China to control liquidity. Local press (Oriental Morning Press) reported the People’s Bank of China decision to include margin deposits in the deposit base for calculating the reserve requirement. This move is likely to be negative, according to Deutsche Bank’s China economists, who believe this surprising policy move reflects growing uncertainty on macro policy-making.
- A Colombian group named Large Scale Mining, representing Colombian ventures of companies including Anglo American, Drummond and Glencore has said that the output may fall just short of government’s expectation of up to 82 mt and expects production to be about 80 mt hampered by rainfall this year. The Colombian miners may still have to face more rains as seasonal storms begin again next month according to a report by Bloomberg news.
