Tagebau Garzweiler Open Pit Mine, North-Rhine Westphalia, Germany
Energy and Natural Resources Market Cheat Sheet (October 17, 2011)
Strengths
- Copper prices continued to rally this week, gaining 4 percent to nearly $3.40 per pound, as sentiment towards commodities improved and the potential of mine worker strikes threatens supply.
- China’s coal imports steamed ahead in September to reach an annualized rate of 244 million tons, which marked a 43 percent year-over-year rise. Exports fell by 35 percent on the same comparison to only 14.7 million tons annualized.
- Brent Crude oil gained over 7 percent this week to $114 per barrel, the highest level in 4 weeks, as supply concerns in the North Sea and Middle East support prospects of a tightening market.
- China, the world’s biggest iron-ore buyer, boosted imports to an eight-month high in September following gains in steel prices. The nation imported 60.57 million metric tons of the steelmaking material last month, China’s General Customs said this week, which is the highest since January and 15 percent more than a year ago.
- Copper imports by China climbed to the highest level in 16 months in September as lower prices lured traders to place orders after domestic stockpiles were reduced earlier this year. Inbound shipments of the refined metal, copper alloy and products rose 12 percent to 380,526 metric tons from 340,398 tons in August, according to General Administration of Customs. Imports gained for a fourth month to the highest level since May 2010, and were 3.3 percent higher than the 368,410 tons of a year earlier.
Weaknesses
- The World Steel Association lowered its growth forecast for India’s steel use to 4.3 percent for 2011 from 13.3 percent predicted in its April 18 report. The forecast for next year was cut to 7.9 percent from 14.3 percent as slower economic growth is expected to weigh on demand.
- In its third quarter 2011 earnings release, Alcoa highlighted weakness in European demand in an otherwise positive picture, while maintaining its view for global demand growth of 12 percent in 2011 with an upward revision to Chinese demand growth to 17 percent offsetting weakness elsewhere.
Opportunities
- China's cabinet announced on Monday it will tax all resource products starting on November first. Crude oil and natural gas nationwide will be taxed at a rate between 5 and 10 percent of their sales value. The regulations impose a sales tax ranging from 8 yuan (1.25 U.S. dollars) to 20 yuan per metric ton on coking coal, and from 0.40 to 60 yuan per metric ton on rare earth ore. Taxes on other types of coal stood unchanged at 0.30 to 5 yuan per metric ton. The tax rate for other non-ferrous metals is set between 0.4 to 30 yuan per metric ton. Ferrous metals will be taxed at two to 30 yuan per metric ton. China's current resource tax is levied based on production volume instead of sales value.
- According to a report from Business Line, the Indonesian government has circulated a new draft decree seeking comments on imposing a ban on the export of coal below 5,100 gross kilo calories per kilogram (Kcal/kg) from 2014. The ban, if implemented, could reduce the exports by 120-130 million tons; the country exported 270 million tons in 2010. India will be impacted the worst as it imports coal grades from 5,000 Kcal/kg to as low as 3,500 Kcal/kg from Indonesia.
- Colombian Mines and Energy Minister Mauricio Cardenas said the country seeks to ensure that gold, coal and other mining projects move ahead at full speed to boost production and government revenue. Colombia wants growth in its mining industry to match rising investment in oil production by helping projects that meet environmental and social standards and avoid delays, Cardenas said. Milton Rodriguez, a member of a Senate commission overseeing natural resources, and other lawmakers had pushed for tax increases on mining companies. Colombia should work on implementing recent changes in how mining revenue is distributed by the government, rather than on changing tax rates, Cardenas said. The Global Resources Fund holds several investments in Colombian energy and mining assets.
Threats
- The International Energy Agency (IEA) cut forecasts for global oil demand in 2012 for a second month as the economic recovery loses momentum. The Paris-based adviser reduced estimates for world demand for next year by 210,000 barrels a day, to 90.5 million barrels a day in its monthly oil market report. That means consumption will increase by 1.3 million barrels a day, or 1.4 percent, from this year. Oil inventories in industrialized nations fell below their five-year average for the first time in more than three years, according to the IEA.
- Copper supply will begin outpacing demand in 2013 as new mines enter production, according to consultancy Brook Hunt. The surplus will start to accelerate toward 2015, according to Richard Wilson of Brook Hunt. The researcher estimates the market will be in deficit by 200,000 metric tons this year and balanced in 2012.
