Energy and Natural Resources Market Radar (November 26, 2012)
Strengths
- The price of natural gas made another 52-week high on Wednesday, reaching $3.90 per Mmbtu on forecasts for colder-than-normal temperatures in the Northeast, which would boost demand for the commodity.
- China’s coal imports rose in October for the first time in four months as maintenance on a railway and the suspension of some smaller mines ahead of the Communist Party congress curbed local supplies.
- Global crude steel output rose year-on-year in October, as a sharp increase in China's production outweighed a drop in output in Europe and the U.S., where demand remains weak, according to data from the World Steel Association.
- A positive indicator for commodities, Chinese fixed asset investment through October 2012 from the National Bureau of Statistics shows a large year-over-year rise in investment in infrastructure in October to 26 percent, compared to 12 percent for the ten months to October.
Weaknesses
- Codelco, the world's largest copper producer, confirmed on Thursday that its output for the January-September 2012 period was down 5 percent year-over-year to 1.189 million metric tons. As a result, Codelco is expecting just under 1.7mt of copper production for 2012 as a whole, down year-over-year, a factor the company puts down to grade depletion at existing mines.
- Traders in China have defaulted on at least three Australian thermal coal shipments in recent weeks, according to a report from Reuters. A rebound in Chinese domestic coal shipments, high stocks at IPPs and further declines in thermal electricity production has reduced the need for Chinese buyers to chase seaborne prices higher during the recent rally.
- ArcelorMittal sees Europe steel demand dropping in 2013. The company told unions at a meeting on November 19 in Paris that it doesn’t expect any improvement next year, Les Echos reports, citing labor representative Francois Pagano.
- Xstrata said this week that it’s reassessing the viability of its coal projects in Australia because of declining prices.
- China’s refined-copper imports fell to the lowest level in 15 months in October, hampered by a week-long holiday and swelling local inventories, while exports gained for the second month to a four-month high of 12,764 mt.
Opportunities
- Growth in shale gas will have a long-term, sustainable impact on the railroad industry. Deutsche Bank estimates that fracking-related revenues will grow from $2.7bn in 2012 to $4.5bn in 2020.
- While the market focus shifts towards mine supply growth expectations in 2013, one of the under-the-radar stories continues to be the lack of scrap availability in global markets. In both steel and copper, lower developed world industrial output has impacted global trade flows and thus consumption, with relative scrap price levels performing extremely well, thus supporting prices despite global growth concerns.
- China's grain imports have been rising since August. On November 10, the State General Administration of Customs released data showing that China's soybean imports were 4.03 million tons in October 2012, increasing 220,000 tons and 5.77 percent compared to the same period of last year. Total imports were 48,340,000 tons from January to October, increasing 16.6 percent year-on-year.
Threats
- According to local media reports, China’s Ministry of Industry and Information Technology (MIIT) has submitted a proposal to reduce the effective tax rate for domestic iron ore mines from the current level of about 25 percent to 10-15 percent. Should this proposal become policy, it would have a meaningful impact on cost support levels and iron ore price assumptions for the coming years, reducing marginal cost support by as much as $14/t.
- Colombia will produce less coal than planned in 2012, with output dropping around 2 percent from its goal after labor unrest in the top-producing province halted operations earlier this year, the government's mining information system said.
