Energy and Natural Resources Market Radar (November 21, 2011)
Strengths
- The Global Resources Fundâs exposure to paper & forest stocks helped performance this week and was one of the better performing industry groups in our natural resources universe.
- The China Iron and Steel Association reported that crude steel output has continued to decline over the start of November, falling to an annualized rate of 607 million tons per annum from 627 million at the end of October. Accordingly, Chinese mills have responded quickly to weaker pricing and reduced production by more than 50 million tons per annum over September-October. This has helped bring the physical market back into balance, allowing steel prices to stabilize and market inventory to fall.
- Royal Dutch Shell said that it has achieved the worldâs deepest well completion on record in the Perdido development in the Gulf of Mexico. Shell said the Tobago field well was drilled in water depths to 9,627 feet and has started production.
Weaknesses
- Both precious and industrial metals stocks underperformed our benchmark this week, which negatively impacted fund performance.
- The price of natural gas fell to a 52-week low of $3.32 per million british thermal units, as inventory levels reached 3,850 billion cubic feet, or 6 percent above the 5-year average.
- Despite breaking the $100 per barrel level, crude oil prices fell week-over-week to approximately $97 per barrel.
- According to industry analysts, aluminum prices have dampened because of high inventories and weak growth prospects. Aluminum prices have tumbled nearly 20 percent in the past three months to around $2,165 per ton.
Opportunities
- Mineweb highlighted that Peruâs regional government said that progress was being made in wage talks between Freeport McMoRanâs Cerro Verde and striking miners, who have just recently extended the strike to the third month. The regional government now believes the dispute at the mine that produces 2 percent of the world's copper can be solved without government intervention, a possible sign President Ollanta Humala wants to stay out of the conflict.
- Minter Ellison, a legal firm, has stated that the removal of the ban on uranium exports to India will present new opportunities and have huge implications to Australia. President Barack Obama visited Australia this week, leaving Australian Prime Minister Julia Gillard to put some hard lobbying into place to overturn a ban on supplying uranium to India.
Threats
- Mineweb reported that BHP Billiton was wary on the commodity market outlook. The worldâs biggest miner warned that some customers are starting to face tighter access to trade finance and some are cutting production. âThe heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the marketsâ for commodities.
