Energy and Natural Resources Market Radar (July 30, 2012)
Strengths
- The yield on 10-year Treasury notes closed the week at 1.534 percent, still below the June Consumer Price Index of 1.7 percent. The dividend yield of the stocks in the Global Resources Fund’s portfolio increased from last week to an average of 3.68 percent.
- Eagle Ford oil production more than tripled in May year-over-year, according to the Texas Railroad Commission, and this may be an underestimate. Experts believe that production here in Texas may reach one million barrels a day in the next couple of years.
- Speculation of Europe’s plan to spur economic growth by purchasing government bonds caused oil to increase 2.2 percent this week. Copper also climbed 2.1 percent from Tuesday this week on the New York Mercantile Exchange. Mario Draghi said that the ECB will do whatever it takes to “preserve the euro.”
- Peru’s mining ministry reported that from January to May, production of copper increased 2.5 percent. It was also noted that production in May was up 8.04 percent year-over-year.
Weaknesses
- The same report from the mining ministry of Peru also showed a decline in zinc and iron ore production. Zinc declined about 4.5 percent during the January-to-May time period and iron ore declined further at 16.02 percent.
- The Western Australian Mines Minister has banned coal mining in the Margaret River region based on the “potential ground water impacts.” All applications to mine in this area will be denied and companies have already started to withdraw their requests. Mineral titles already granted, however, will remain intact but any coal mining project proposals will be rejected.
Opportunities
- Tenova Mining and Minerals was awarded a contract to design a copper ore handling and processing system as well as a solvent extraction and electro-winning plant, which could potentially produce 80,000 metric tons per year of copper cathodes. This will support Minera Antucoya’s copper oxide deposit in Chile.
- Aluminum Bahrain BSC (Alba) has hired BNP Paribas to assist the company in a $2.5 billion dollar expansion plan to add 400,000 metric tons of capacity annually (currently 881,000 metric tons) to its operations. According to Reuters, this could be completed by 2015. Alba is currently the fourth largest aluminum smelter.
- In China, the capital of Hunan Province has announced plans of a 195 project undertaking for 2012. It will involve airport, urban transit, and residential infrastructure development.
Threats
- Iron ore prices are now at $116.20 per metric ton, the lowest since December 2009. Small traders in China are now selling their stockpile for a loss, and this would have a very negative impact on the commodity if larger traders were to follow.
- Lakshmi Mittal, CEO of ArcelorMittal, the world’s largest steel and mining company, said that the steel market would remain week going into the second half of the year, especially in Europe. The company lowered expectations of European consumption to between 3 percent and 5 percent for 2012.
