Energy and Natural Resources Market Radar (October 15, 2012)
Strengths
- Natural gas futures reached an 11-month high price of $3.60 per million Btu this week on a bullish weekly storage data point from the Department of Energy.
- Coal stocks climbed over 12 percent this week as the stocks rebounded from multi-year lows reached this summer fueled by rising natural gas prices, which could reverse some of the coal-to-gas switching that occurred earlier this year with U.S. power generators.
- Corn prices rebounded this week to more than $7.54 per bushel after the USDA, in its monthly World Agricultural Supply and Demand Estimates report, reduced estimates for global corn ending stocks by 5 percent which was below expectations with global corn stocks-to-use now estimated at a historically tight 12.4 percent.
Weaknesses
- Demand for thermal coal by Chinese power generators in the last 30 days has fallen by 12.7 percent on a year-over-year basis, as overall power demand growth is weak (2.6 percent in August) and high hydroelectric production reduces the need to burn coal for power.
- U.S. steel capacity utilization fell to 71.1 percent, the lowest reading since January 2011, as domestic demand continues to be sluggish and prices have trended lower.
Opportunities
- Refining stocks, which have far outperformed the S&P 500 this year, may have another leg up this winter. The latest set of U.S. inventory data revealed further draws in gasoline and notably distillate stocks, exacerbating an already tight picture for refined products. U.S. distillate stocks fell by 3.2 million barrels, three times greater than expected, and October-to-date inventories are 13 percent below year-ago levels on an end-month basis. Adding further bullishness to the distillate picture is the official U.S. government forecaster (the National Oceanic and Atmospheric Administration) calling for a normal winter ahead, which would make it 20-27 percent colder than last winter, signaling robust heating fuels demand ahead according the Deutsche Bank.
- Indonesia, the world’s biggest palm oil producer and second largest for rubber, should make agriculture more attractive for investors to improve food security, said the Organization for Economic Cooperation and Development. Restrictions on foreign ownership, complicated land rights, the need for many permits and licenses, and inadequate transport and irrigation systems are among factors discouraging investors, it said in a review of agricultural policies.
- Wood Mackenzie released a report on Monday looking at global mining capital spending which suggested $521 billion will be invested over the next four years, representing a 22 percent increase over the 2009-2012 period. Overall peak investment is forecasted in 2014, with coal and nickel capex peaking in 2012, iron ore in 2014 and copper in 2015.
Threats
- China is facing an oversupply of coal in 2012, as coal production is maintaining a high growth rate even though growth in consumption has declined and inventories are high, a top energy official said Thursday. Increasing output, weakening demand, high stocks and falling prices are major problems for the country's coal industry, said Wu Yin, deputy head of the National Energy Administration.
- The World Steel Association released its October Short Range Outlook, in which it lowered its steel demand growth expectations from its April outlook. Global steel use is expected to increase 2.1 percent in 2012 (versus previous expectations of 3.6 percent) and 3.2 percent in 2013 to 1.455 million tons (versus previous expectations of 4.5 percent growth). Chinese consumption growth estimates for 2012 and 2013, of 2.5 percent and 3.1 percent, were revised down from 4 percent and 4 percent, respectively
