Energy and Natural Resources Market Radar (June 18, 2012)
Strengths
- Positive import data into China offsets concerns about an economic slowdown. According to Chinese data for the month of May, crude oil imports increased 11.5 percent on the month, and iron ore gained 13 percent versus April. Copper and related products also rebounded from the prior period but remain below the 2012 peak due to still high inventories.
- A key metric for the Chinese economy, power consumption in May improved significantly from April. May power output was up by 5.2 percent year-over-year compared with 3.5 percent growth year-over-year in April, and for the first five months as a whole, Chinese power consumption was up by 5.8 percent.
- Xstrata continues to observe “strong” copper demand in Asia and there has a been a “modest recovery” in demand for the metal in the U.S., Charlie Sartain, head of the company’s copper division said.
- Platinum and palladium prices have recently outperformed gold and silver on renewed supply concerns in South Africa, according to Deutsche Bank. After the recent Marikana PGM mine closure due to cost pressure, a South African mine workers union fight is also threatening to disrupt production.
Weaknesses
- The latest SteelBenchmarker price assessment by World Steel Dynamics has confirmed there has been no respite in the global steel price slide. U.S. hot-rolled coil (HRC) prices dropped below $700 per tonne for the first time since November 2010, while the World Export HRC price recorded its third consecutive fortnightly fall, dropping $21 per tonne to $609 per tonne. This is also the lowest since November 2010. Per Macquarie Capital, at current price levels, a significant portion of global steelmakers will be losing money on a cash operating basis.
- Russian aluminum producer Rusal plans to cut to 10 percent of annual output by end of year, Bloomberg reports citing Deputy CEO Vladislav Soloviev. The company expects to start the cuts “very soon,” Soloviev added. Soloviev further said that aluminum price could reach $2,300 a ton in the second half of 2012 and aluminum supply and demand to be “balanced” this year.
- Eastern Platinum is the latest miner in the platinum space to succumb to the increasing cost pressures in a decreasing commodity price environment; Eastplats warned of potential job losses, and announced plans to temporarily suspend stopping at Zandfontein and embark on a 12-18 month development program to reduce costs and improve efficiencies.
Opportunities
- China is hoarding crude at the fastest rate since the Beijing Olympics four years ago as the slump in international prices prompts it to import unprecedented volumes even as refining slows. The world’s second-biggest oil consumer built up a surplus of about 90 million barrels of crude in the first five months of the year, government data show. The excess, the most since the run-up to the 2008 games, is probably being kept at emergency and commercial storage centers, according to the International Energy Agency.
- According to Mining Weekly, Codelco will invest $4.3 billion in 2012 of which $2.2 billion of investment will go to key projects developed by the company at its different divisions, to be managed by Project Vice-Presidency.
Threats
- A Wall Street Journal article saying Glencore/Xstrata deal at risk given the $267 million executive retention package including the $45 million payout for Mick Davis for three years of commitment. Speculation continues that the deal is in jeopardy without a further bump.
