Energy and Natural Resources Market Radar (February 11, 2013)
Strengths
- Copper remains well supported near $3.80 per pound after data showed that copper imports by China, the world’s largest user, advanced by 2.9 percent in January from a month earlier as trading firms bought the metal before Lunar New Year in preparation for a recovery in demand in March. Inbound shipments of refined metal, alloy and products were 351,000 metric tons last month, the General Administration of Customs said on its website this week.
- Positive data continues to flow from China as the country reported that January coal imports rose 56 percent from a year ago, according to data released by the Beijing-based General Administration of Customs.
- Brent crude oil continued its ascent, rising as high as nearly $118 per barrel this week, reflecting a tighter fundamental picture as demand prospects improved amidst optimism for global economic growth. Also contributing to the rise were indications that Saudi oil production held steady in January after the kingdom cut output in November and December 2012 to the lowest level since May 2011, according to IEA estimates.
Weaknesses
- China’s January coal imports fell 13 percent month-over-month, against record December imports according to preliminary customs data.
- According to China Iron & Steel Association, the country’s crude steel output fell 0.45 percent to 1.906 million metric tons in the last 11 days of January compared with 1.914 million metric tons in mid January.
Opportunities
- The U.S. Federal Reserve's balance sheet grew to a record size in the latest week, Fed data released on Thursday showed. The Fed's balance sheet - a broad gauge of its lending to the financial system - stood at a record-large $2.997 trillion on Feb. 6, compared with $2.991 trillion on Jan. 30 and the previous record of $2.994 trillion as of Jan. 23. The Fed's holdings of Treasuries totaled $1.717 trillion as of Wednesday versus $1.710 trillion the previous week.
- U.S. coal markets may tighten on the news that workers at Colombia's largest coal exporting company, Cerrejon, began a strike on Thursday. The company’s first in more than two decades began after the two sides failed to reach an agreement during last-minute talks on wages and benefits. The dispute adds to problems in the Andean nation's coal industry, which is facing an environmental inquiry into Drummond, the second-largest exporter, and a dispute at a mine owned by a Goldman Sachs Group, Inc. affiliate. In total, about 85 percent of Colombia's daily coal production will be shut down as a result of the sector's recent problems.
Threats
- A new IHS study challenges assumptions that China will remain a top coal importer. The study suggests that the imports will drop on the back of a moderation of demand along with a rise in domestic supply, improved transportation and a diversification of fuel sources. The analysis suggests that the imports may have peaked at 145 million tonnes of standard coal equivalent in 2012 and should now enter a gradual decline through 2035.
- Geo-political risk for natural resource development projects are always a threat. The government of Mongolia is withdrawing support for a potential $6 billion in project financing that Rio Tinto is negotiating with lenders including the European Bank for Reconstruction and Development, the World Bank’s International Finance Corp. and private sector banks. Rio Tinto Group plans to resume talks with Mongolia this month to resolve concerns that spending at their jointly owned Oyu Tolgoi mining project is overshooting and the country is not benefiting enough from the development. Shareholders met in Ulan Bator yesterday to discuss outstanding issues surrounding the gold and copper venture.
