Energy and Natural Resources Market Radar (August 20, 2012)

Energy and Natural Resources Market Radar (August 20, 2012)

Strengths

• The price of oil gained 3.5 percent this week, to $96 a barrel, the highest level since May 11.
• Output from the world's largest copper mine, Chile's Escondida, jumped 18.3 percent in the first half of the year compared with the same period of 2011, to 533,200 metric tons.
• China electricity consumption in July increased 4.5 percent year-over-year to 456 million MWh. The growth rate remains somewhat subdued due to soft manufacturing sector demand.

Weaknesses

• The latest composite leading indicators (CLI) from the Organisation for Economic Co-operation and Development, designed to anticipate turning points in economic activity, continue pointing to a slowdown in activity for most of the world’s major economies.
• The civil disorder issues at Lonmin’s Marikana platinum mine appear to be worsening. South African riot police have reportedly opened fire on striking miners armed with machetes and sticks, killing more than 30 miners. Lonmin said it had lost the equivalent of 15,000 ounces of platinum from the six-day disruption.
• Baosteel cut September prices of its main steel products for a third time since June, following a fall in demand. Its list price for hot-rolled coil (HRC) was reduced by Yuan 100/t to Yuan 4062/t ($635/t).

Opportunities

• Colombia's main railway, Fenoco, has restarted shipping coal to ports after the end of a nearly month-long strike in the world's fourth-largest coal exporter, the company's president reported on Friday. The union on Thursday ended the 25-day strike, which had prevented exports from Colombia's main coal-producing province of Cesar.
• Vale’s CEO expects iron ore prices to start recovering in September due to falling stocks in China.
• Newcrest Mining expects to spend about $5 billion over the next five years to lift output to 3.5 million ounces of gold by 2017 (vs. target of 2.5 million ounces for 2012).

Threats

• The probability of a large scale asset purchase announcement (QE3) at the September 12-13 Federal Open Market Committee meeting is not as certain as originally thought, according to some economic analysts.  This could be a headwind for further gains in the commodities asset class.
• Markets are facing a potential threat from the “fiscal cliff,” a series of U.S. tax and spending policies scheduled to take effect on New Year’s Day 2013. It is difficult to predict exactly whether or how a solution can be reached given impending elections, leading to increased market uncertainty.