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

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

Strengths

• Natural gas futures closed at their highest level this year at $3.53 per mmbtu early in the week as a forecast for a blast of cold air in the U.S. signaled stronger demand for heating fuel.
• The shale revolution continues as U.S. oil production climbed last week to the highest level since December 1996 to 6.52 million barrels a day in the week ended September 28, the Energy Department reported. America met 83 percent of its energy needs in the first six months of the year, department data shows.

Weaknesses

• The latest data from the American Iron and Steel Institute shows that U.S. weekly crude steel output dropped to the lowest level thus far in 2012 in the week ending September 28. Output dropped 2.4 percent week-over-week to 83.6 million tonnes per annum, while capacity utilization fell to 72 percent from 73.8 percent the previous week. The slowdown suggests some wider weakness in the overall U.S. economy, and has been accompanied by sharp falls in hot rolled coil and steel scrap prices over the past couple of weeks.
• Iron ore miner Vale said it would temporarily idle three iron ore pellet plants comprising about 20 percent of the company’s pellet capacity in response to falling demand. The company said it would boost supply of sinter feed instead as it reduces iron ore supplied to pellet plants.

Opportunities

• Chinese iron ore output rose only 2.6 percent year-to-date through August, the weakest growth for the month since 2009. Average capacity-weighted cash costs are about $100 per metric ton, and the Metallurgical Mines' Association of China recently claimed that nearly 40 percent of domestic iron ore mine output has been halted, which could support prices.
• Iraq’s crude oil exports are likely to exceed 2.7 million barrels a day in October and the country’s Kurdish northern region is expected to increase its crude exports to 200,000 barrels, the Oil Minister said.

Threats

• A global nickel surplus may expand for a third year to the highest level since 2008 as supply from new mining projects outweighs China’s demand growth. Supply will likely exceed demand by 60,000 metric tons in 2013, said Toru Higo, Sumitomo Metal Mining’s general manager of nickel sales and raw materials. Supply outstripped demand by 40,000 tons this year and 22,000 tons in 2011, he said in an interview with Bloomberg news.
• The World Steel Association (WSA) said China’s expected steel demand growth may not materialize. WSA said that expectations of a recovery in Chinese steel demand after years of declining growth may not materialize given the likelihood of less intense usage of steel as the country moves to a different stage of its economic growth. This may worsen the oversupply problem.