Energy and Natural Resources (April 15, 2013)

Energy and Natural Resources Market Radar (April 15, 2013)

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Strengths

• Natural gas futures (NYMEX) closed the week at another 52-week high of 4.23 per mmbtu.
• Imports of liquefied natural gas by Japan’s 10 major power utilities in the fiscal year ended March rose to 58.3 million tons from 55.5 million tons in the prior year, the Federation of Electric Power Companies said.
• Chinese car sales continue to boom, rising 15 percent year-over-year in March to 1.46 million vehicles, according to data released by the Chinese Passenger Car Association (CPCA). Over the first quarter they totaled 4.2 million, 19 percent higher year-over-year. This is potentially good news for palladium, as nearly one-sixth of total demand was from Chinese autos in 2012.

Weaknesses

• Bloomberg reported that coal miner Xstrata will sell thermal coal to Tohoku Electric Power at $95 per ton, the lowest settlement price since 2009.
• Three high-profile benchmark forecasters have lowered their global oil demand growth forecasts reflecting a more bearish tone to the outlook for this year. The U.S. Energy Department and the Energy Information Administration trimmed their 2013 growth forecast by 50 thousand barrels per day and now see oil demand growth at 960 thousand barrels per day this year. OPEC cut its 2013 forecast by 40 thousand barrels per day and now expects global oil demand to rise by just 800 thousand barrels per day this year. The International Energy Association cut its estimate by 45,000 barrels a day, predicting that world consumption will increase by a “subdued” 795,000 barrels a day, or 0.9 percent, to 90.58 million barrels a day this year.

Opportunities

• The Potential Gas Committee released its annual report this week and suggested that potential U.S. natural gas reserves are 2,354 trillion cubic feet (TCF) up by 486 TCF from last year. This is additional to the proven reserves of 305 TCF. The increase is attributed to a reassessment of the potential of the Marcellus and Utica shale plays. This group is funded in part by the exploration and production companies and the Wall Street Journal suggests that this new study will help lawmakers with decisions on U.S. gas exports.
• The high cost of energy in Chile is threatening the competitiveness of the country's copper industry and poses a major challenge for new development, industry executives at a copper convention in the Andean nation said this week. Electricity costs in Chile, the world's top copper producer, have risen 11 percent per year since 2000, making it one of the most expensive places in the world to secure energy for mining projects. With regulatory gaps making it difficult to permit new power infrastructure, the situation could get critical, according to Diego Hernandez, chief executive of Antofagasta Plc. "I think Chile can continue to have a huge advantage in mining," he said. "We have the deposits, but if we don't solve, among other things, the fundamental issue of making energy happen at a competitive price, it's not going to succeed."

Threats

• BHP Billiton Ltd., the world’s biggest mining company, said Australia’s mining industry needs a new plan as the sector battles costs that are rising faster than its global competitors. “When we talk about capturing the next generation of opportunities in the resources industry, we need a new plan – a plan with national productivity at its core,” Jac Nasser, chairman of the Melbourne-based company, said today in notes for a speech to the Australian British Chamber of Commerce. “The industry has experienced unprecedented growth. At the same time Australia’s costs rose more quickly than our global competitors.” BHP paid $9 billion in taxes and royalties in Australia last year, out of a global total of $11 billion, Nasser said. The company had 52 percent of its long-term assets located in Australia as of the year ended June 30, 2012. “This is an effective tax rate in Australia of 45 percent,” he said.
• Inventories of steel products in China hit a record high in March, the Ministry of Industry and Information Technology (MIIT) revealed, in further bad news for the nation's steel sector, which has been hit hard amid the economic showdown. The total stockpiles of five major steel products across 22 cities reached a new record of 15.57 million tons during March, up 22.9 percent compared to a month earlier, the ministry said in a statement on its website, citing the latest figures from the China Iron and Steel Association (CISA).