Energy and Natural Resources Market Radar (November 5, 2012)
Strengths
- The Global Resources Fund outperformed its benchmark in October with a loss of 0.89 percent versus the Morgan Stanley Commodity-Related Index which declined 0.99 percent. Year-to-date through October, the Global Resources is up 6.84 percent and is ahead of its benchmark by 612 basis points.
- Iron ore has hit three-month highs and is expected to rise for a fourth consecutive week as Chinese steel mills increase their stockpiles on hopes of a modest steel demand revival according to Reuters news.
- China’s official Purchasing Managers Index (PMI) rose to 50.2 in October from 49.8 in September, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. The HSBC PMI for October also rose, to 49.5 from 47.9.
- Japanese import data released this week showed record strength in both thermal and metallurgical coal imports. The country imported 10 million tons of thermal coal, up 21 percent year-over-year. This was an eight-month high and puts imports near the highs of the last eight years. Met coal imports of 6.84 million tons climbed 27 percent year-over-year. This represents the strongest month since May 2010, with net imports over the last two months near prerecession levels.
- Russia’s crude oil and condensate output climbed to a post-Soviet record of 10.46 million barrels per day in October, beating the high reached the previous month, according to the Energy Ministry’s CDU-TEK unit. President Vladimir Putin has called for Russia to maintain production at above 10 million barrels a day for at least the next decade and ordered the government to prepare new tax breaks to encourage development of the continental shelf and unconventional oil reserves.
Weaknesses
- The output of China's steel industry slowed significantly in the first three quarters of 2012, according to data provided by the country's top economic planner on Sunday. Crude steel production increased by only 1.7 percent year-on-year from January to September to reach 542.34 million tonnes, retreating 9 percentage points from the same period last year, the National Development and Reform Commission (NDRC) said in a report on the steel industry.
- Cameco Corp., the world’s third-largest uranium miner, dropped the most in five months in Toronto after cutting its 2018 production target by 10 percent. “Market uncertainty in the near term led us to review and adjust our growth plans,” Cameco Chief Executive Officer Tim Gitzel said yesterday in a statement. “We decided to focus on advancing projects with the greatest certainty in the near term, from which we expect to achieve about 36 million pounds of annual supply by 2018 compared to the 40 million previously targeted.” Uranium spot prices have slumped since the March 11, 2011, earthquake and tsunami led to a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear power plant. In response, Japan suspended its fleet of nuclear power plants.
- China’s coal market has been beset by a general oversupply of thermal coal over the first three quarters of 2012, Platts reported citing the NDRC. NDRC said China’s national coal stocks stood at a rather high level – 287 million tonnes – at the end of September. China mined 2.88 billion metric tonnes of coal over January-September, up 3.6 percent year-over-year, according to China National Coal Association (CNCA) figures. Together with net coal imports of 196 million metric tonnes over Jan-Sept, national coal supply over the Jan- Sept 2012 period amounted to about 3.08 billion metric tonnes. In comparison, China was estimated by CNCA to have consumed about 3.02 billion metric tonnes of coal over the nine months, the report stated.
Opportunities
- Consumption of refined copper in China will rise 5.5 percent to about 8.1 million tonnes next year as the economy in the world's top consumer of the metal picks up, a senior analyst at state-backed research firm Antaike said. Yang expects real consumption of refined copper to rise 4.8 percent year-on-year to 7.68 million tonnes this year, weaker than 7.8 percent in 2011, 11.5 percent in 2010, 19.6 percent in 2009 and 11.8 percent in 2008. He said that demand from the power sector, the top user of copper in China, would rise 7.1 percent this year from an 8 percent increase in 2011. Consumption of refined copper from the air-conditioner and cooling sector, the second-largest user of the metal in the country, will climb just 1.7 percent this year from a 15.2 percent increase the year before, Yang estimated.
- Over 90 percent of the world's rice is produced and consumed in the Asia-Pacific region where more than three billion people live. A population projection made for 2025 by FAO shows an average increase of 51 percent based on the year 1995; therefore, the amount of rice produced at 524 million tonnes annually to serve current consumers has to be increased to 700 million tonnes by 2025. The task of increasing the rice supply is facing difficulties due to climate change and the lack of new generation farmers. While the number of consumers in each mega city is growing, the number of producers is reducing dramatically. Realizing the problems, Thailand's Rice Department in cooperation with Naresuan University (NU) is trying to replace human labor by utilizing agricultural machinery to produce enough supply for national consumption and for export. Professor Dr. Sujin Jinahyon, president of NU, says it is time for the Association of Southeast Asian Nations (ASEAN) to cooperate in rice production to cope with the world's increasing demand.
- Europe is missing out on the natural gas boom that is transforming energy use in the U.S. and Asia, instead burning cheaper, dirtier coal imported from America. Global gas consumption may rise 19 percent by 2017 from 2010 levels as demand surges in Asia and the U.S. while Europe’s usage drops 1.6 percent, according to the International Energy Agency. Increasing coal-fired generation in Europe has cut gas demand by 3 billion cubic feet a day, about 7 percent of consumption. European utilities’ preference for burning coal to generate electricity is pushing up carbon emissions even after the region invested twice as much in renewable energy as the U.S. since 2004. In Europe, gas costs three times as much as in the U.S. German power stations make a loss of 11.25 euros a megawatt-hour from burning gas, according to the so-called clean-spark spread , which takes into account electricity, fuel and carbon prices for next month. The equivalent measure when burning European coal for delivery to Amsterdam, Rotterdam and Antwerp shows a profit of 14.22 euros a megawatt-hour. U.S. Central Appalachian Coal Futures for the next month traded at $59.43 a short ton on Oct. 29, excluding shipping, versus $84.85 a metric ton ($93.53 a short ton) for European coal.
Threats
- Refined copper output will exceed demand by 281,000 metric tons in 2013 after a shortage of 545,000 tons this year, the International Wrought Copper Council said. Global apparent copper demand is expected to increase 3 percent to 20.6 million tons and another 0.8 percent next year to 20.77 million tons, the group of copper products manufacturers said. China’s apparent demand this year is expected to increase by 9 percent to 8.65 million tons, it said. “Underlying demand for refined copper in China remains comparatively weak with underlying demand expected to increase by only 4 percent in 2012,” the council said.
