Energy and Natural Resources Market Radar (April 9, 2012)

Energy and Natural Resources Market Radar (April 9, 2012)

Strengths

• Saudi Arabia is likely to maintain high oil production in the event consumer countries release emergency stocks, but it will not seek to lure buyers for more oil by discounting its crude, industry sources said. Spare capacity has fallen below 2 million barrels per day which typically is a sign of a tight oil market.
• Palm oil gained to the highest level in more than a year on speculation that buying from China, the biggest user of cooking oils, may increase when local markets reopen this week after a three-day holiday. June-delivery palm oil rose as much as 1.2 percent to 3,574 ringgit ($1,167) a metric ton on the Malaysia Derivatives Exchange, the highest for a most-active contract since March 9 last year. Financial markets in China were closed from April 2 for public holidays. Palm oil advanced 2.9 percent in two days after a U.S government survey showed soybean acreage in the world’s largest producer will decline. Palm oil and soybean oil are substitutes in food and fuel uses.
• Also in agriculture, soybeans jumped 3.5 percent after the U.S. Department of Agriculture cut the acreage to 73.9 million acres which is the lowest since 2007. Soybeans advanced 17.1 percent in the first quarter and were the best-performing agriculture commodity year to date as dry weather conditions in South America hurt crops.
• The Sun reports that stores are hiking the price of Easter eggs — even though the cost of producing them has fallen. Since peaking two years ago, cocoa prices have plunged by a third. But Easter egg favorites are still up in price.

Weaknesses

• A slump in coal exports contributed to another monthly trade deficit for Australia. Exports were down to their lowest level in a year at A$24.4 billion as coal exports plunged 21 percent to A$3.4 billion, the lowest since March 2011. Hard coking coal exports were down $597 million, 27 percent, hurt by volumes down 27 percent. Thermal coal export volumes were down 16 percent and prices were down 4 percent, implying a 19 percent drop in dollar terms.
• While gold producers in Mali signal mining operations have so far gone unaffected by a recent military coup d'état and an ongoing rebel insurgency in the country's north, juniors, intermediates and majors alike have suspended work at Malian exploration projects citing, among other reasons, fuel-supply risk and flight of foreign personnel. The latest notice of suspension of exploration operations comes from intermediate producer IAMGOLD.
• Bloomberg news reported waning demand for gasoline is putting the U.S. on course to miss a target for ethanol use for the first time, signaling no let-up in the slide in prices. A 2007 U.S. law requires refiners to mix 13.2 billion gallons of renewable products with motor fuels in 2012, up 4.8 percent from last year. Gasoline demand averaged over four weeks fell 3.8 percent from a year earlier, the U.S. Energy Department reported this week.

Opportunities

• Global food prices rose in March for a third successive month, driven by gains in grains and vegetable oils, the United Nations' Food and Agriculture Organisation (FAO) said on Thursday, putting food inflation firmly back on the economic agenda. Food prices hit record highs in February 2011 and stoked protests connected to the Arab Spring wave of civil unrest in some north African and middle eastern countries. They then receded but started to grow again in January. An FAO index that measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up from a revised 215.4 points in February, FAO data showed. Its Cereal Price Index averaged 227 points in March, up from February, with maize prices showing gains, supported by low inventories and a strong soybean market, the FAO said. "You can see prices in the near term rising even further," FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters before the index update.
• China is mulling a new round of subsidies for the home appliance sector that may help support copper demand this year according to Hu Xiaohong, an official with China Household Electrical Appliances Association. Subsidies for the purchase of energy-saving models of air conditioners and televisions are being considered. Last year, air-conditioner manufacturers were the second-largest consumers of copper in China, behind the power sector comprising 15 percent of consumption.
• Chinese aluminum producer Chalco is said to be buying a controlling stake in a Mongolian coal miner. Chinese aluminum producer Chalco has agreed to buy 56-60 percent of SouthGobi Resources at $4.89/share (a 29 percent premium over SouthGobi’s closing price) from Ivanhoe Mines. Chinese miners have increased initiatives to acquire overseas natural resources assets as the deal suggests. Chalco is diversifying its exposure out of aluminum and is investing in other resources as well; however, this coal will help in securing coal for its aluminum production, too.
• In coking coal, BHP Billiton has declared force majeure on coal shipments from its Bowen Basin coal mines in Australia due to a continued workers' strike and heavy rainfall. The industrial action at the BHP Billiton-Mitsubishi Alliance (BMA) operated Bowen Basin coal mines has clearly intensified, adding to the rolling work stoppages experienced since June 2011. BMA-operated coal mines together produced 38.2 million tonnes of coking coal, accounting for 14 percent of the global coking coal trade and 29 percent of Australian coking coal exports in 2011.

Threats

• Despite some confusion, an industry ministry official said this week that Indonesia plans to impose a 25 percent export tax on coal and base metals this year, jumping to 50 percent in 2013, as the major producer of raw materials looks to boost domestic investment and take a bigger slice of mining profits. If imposed, the tax would add to a raft of regulations announced this year that have caused confusion in Indonesia's mining sector and worried foreign investors. It would hit the profits of both national and foreign-owned companies and could also raise costs for importers. India, a major buyer of Indonesian coal, said it would raise concerns about the proposed tax with Jakarta.
• States hoping to capitalize on their energy booms are running into resistance from local officials who want to be able to police the noise and industrialization that accompany oil-and-gas drilling. Last Thursday, seven towns collectively sued Pennsylvania in state court to overturn a law passed in February that prevents them from using their zoning authority to regulate oil-and-gas development. The day before, an Ohio state senator introduced legislation to grant local officials more control over where companies can drill. The municipalities are fighting laws that bar them from regulating drilling, enacted by state lawmakers who feared towns would stunt job-creation and a stream of tax revenue.
• Agrimoney reported that “U.S. corn stocks may fall over 2011-12 up to 50 percent more than officials are currently factoring in,” analysts said, as they reacted to data showing inventories weaker-than-expected at the mid-year stage. The U.S. Department of Agriculture has forecast a 327 million bushel drop in inventories, to 801 million bushels, over the current season, depleted by resilient domestic and export demand following a disappointing harvest. However, investors expected the figure to be revised after inventory data, released on Friday, showed stocks as of March 1 at a multi-year low of 6.0 billion bushels, and below market forecasts.
• Argentina’s Neuquen Province has revoked oil and gas concessions held by three companies, Tecpetrol, Argenta Argentina and Petrobras, because the companies had not invested enough in production at the oil fields, the province said in a statement. The concessions will be given to the provincial government's oil and gas company, Gas y Petroleo del Neuquen.