Energy and Natural Resources Market Radar (June 3, 2013)
Strengths
- World industrial production, a key determinant of metals demand, was 0.6 percent higher in March 2013, latest data from Dutch research group CPB shows, with strong gains in all regions except Africa and the Middle East. Output was just 1.7 percent higher year-over-year, but that reflects a very weak July-Sep 2012. Since then output has risen 2.2 percent in six months.
- With consecutive records in the reported ten day steel production rates in China over mid and late April, it looks like April should be a record month for steel production in China. This has come at the same time as a very healthy 67Mt imports went into China in April (third highest on record).
- The U.S. land rig count was up 5 rigs from the prior week, while the offshore rig count was up 4 rigs (+8 percent). Accordingly, the overall U.S. rig count was up 9 rigs (+1 percent) from last week to 1,771 rigs, which compares to a 7 rig decrease in the prior week.
Weaknesses
- Global coal producers cut back. Australian miners recently announced measures to streamline operations, reduce costs, and cut output in response to low prices.
- The combination of overcapacity and weakness in steel demand outside China continues to bear down on steel prices, as illustrated by the latest SteelBenchmarker data from World Steel Dynamics. WSDâs HRC export price fell $7/tonne to $546/tonne and is now at its lowest level since the end of November 2012, while the domestic US HRC price is at its lowest level since November 2010 at $637/tonne.
- China crude steel output slips in mid-May from an all-time high. China daily steel output for mid-10 days of May slipped marginally (0.3 percent) to 2.185 million tons per day vs. 2.193 million tons per day in first 10 days of May. This latest figure annualizes to approximately 798 million tons per year vs. output of an estimated 709 million tons in 2012. (CISA)
Opportunities
- Vale wins approval to exploit an iron ore deposit in the Brazilian state of Minas Gerais as it seeks to replace dwindling output. The permit allows estimated 20 million metric tons of iron ore production a year on reserves of 64.9 million tons.
- South Africa may take unspecified "interventions" in the gold and platinum sectors, as part of a state plan to maintain the viability of the industries, said the Mines Minister, although no details were provide on what the interventions might involve. Also, the government will not tolerate anarchy or wildcat strikes at the countryâs mines as annual wage negotiations in the industry get underway, according to the Mineral Resources Minister.
Threats
- With the release of the weaker-than-expected business confidence in China, concerns are increasing with respect to deteriorating fundamentals as we approach the mid-year summer slowdown period. Copper in particular remains vulnerable to underperform versus the rest of the complex.
- Latest LME open interest data signals new short positions being established over the last week or so in some of the main metals markets traded on the exchange. On a one-month view the data points to a combination of long liquidation and short covering in most cases. Aluminium appears most bearish while there may be some cautious optimism emerging in lead.
