Energy and Natural Resources Market Radar (June 24, 2013)
Strengths
- The Architecture Billings Index came in at 52.9 in May, up from 48.6 in April. For nine of the last ten months, the score has been above 50.
- Nymex natural gas futures gained 3 percent this week as warm weather boosted power demand.
- Imports of refined copper by China, the biggest user, rebounded in May from the lowest level in almost two years as the price difference between Shanghai and London prompted traders to place orders. Inbound shipments were 232,155 metric tons last month, data from the General Administration of Customs showed this week. That compared with 183,023 tons in April and 301,990 tons a year ago, according to data compiled by Bloomberg.
Weaknesses
- The HSBC flash manufacturing PMI fell sharply to 48.3 in June from 49.2 in May, much weaker than expected with consensus at 49.1.
- ChinaMining reported that âIn the first four months of this year, total coal production in China was 1.15 billion tons, 23 million tons less than that in the same period of last year, a decrease of 2 percent. The situation this year is distinctively different from that of last year when the coal industry operated at full capacity in spite of slipping price in order to achieve quick turnover at low profit margins. This indicates that the depression of the market has impacted the production section of the coal industry, affecting the production enthusiasm of coal enterprises and restraining coal enterprises' investment in fixed assets.â
Opportunities
- The Wall Street Journal reported that President Enrique Peña Nieto will in the coming months seek to end a taboo of nearly eight decades by opening the state-run oil and gas industry to private investment and competition, a move the government hopes will attract billions of dollars in investment. Mr. Peña Nieto's government wants to allow private energy firms to share the risks involved in developing increasingly complex energy reserves such as deep-water oil deposits by letting them produce oil and gas through profit-sharing deals and joint ventures with state monopoly Petroleos Mexicanos, or Pemex, according to three high-level government and ruling party officials who gave details of the proposed reform for the first time.
- The Peopleâs Daily reports that âAs a major energy consumer, China's appetite for natural gas is growing rapidly as the country tries to raise the proportion of clean energy in its total mix.â During the first four months of this year, China's natural gas production was 40.2 billion cubic meters, up 7.7 percent year-on-year, while natural gas consumption soared 13.2 percent to 56.8 billion cubic meters, according to the National Development and Reform Commission (NDRC). Natural gas imports for the first four months surged 32.3 percent year-on-year to 17.1 billion cubic meters. Due to the widening gap between natural gas consumption and production, China often faces gas shortages. The NDRC said on Wednesday that the three top oil and gas companies should increase the nation's natural gas supplies and ensure supplies for residential users. The domestic natural gas market has faced shrinking supplies and increasing demand since March, said Sublime China Information Co. Ltd., a local commodity consultancy. It said the situation will continue. To cope with increasing energy demand, China has been making efforts in upstream exploration, especially in the shale gas sector where it is believed that the country has the largest reserves in the world. However, Adi Karev, oil and gas global leader of Deloitte Touche Tohmatsu Ltd., said China faces three major obstacles in shale gas development: infrastructure construction, technology barriers and water shortages. Those problems mean that what happens in the U.S. cannot be easily replicated in China. "Shale gas is set to remain a largely regional resource over the next three years because of the increased technological challenges and higher development costs of the resource," he said on Thursday in Beijing.â
- Global trade in liquefied natural gas (LNG) will grow by nearly a third by 2018, with supplies from the United States and Australia reversing a shortage expected over the next two years, according to the International Energy Agency (IEA). It warned that last year's record drop in LNG output could be replicated this year and in 2014, threatening to drive up fuel costs in some of the world's biggest economies. It said supplies will start to increase from 2015 when terminals in the United States begin exporting LNG due to a glut of domestic shale gas, followed by a wave of new Australian export projects. "LNG markets will face unprecedented tightness over 2013-14 as LNG demand from Asia will exceed the little additional LNG supply expected to come on line, while many existing LNG facilities could face declining supplies, repeating the situation of 2012," the IEA said in a report.
Threats
- Brazil, a major producer of iron ore, gold, copper and other metals, unveiled a long-awaited bill to reform its 46-year-old mining code on Tuesday, proposing a doubling of the current top royalty rate and stricter rules for opening new mines. Murilo Ferreira, chief executive of Vale SA, the world's largest iron ore exporter and Brazil's dominant mining company, said the bill would hit the industry hard. He expects the government's revenues from royalties to more than double to 4.2 billion reais ($1.93 billion) from 1.7 billion reais. Even so, provisions of the bill are less onerous than the industry feared when the discussion of reforms began nearly four years ago. The top royalty rate under the proposal of 4 percent is only one-third of typical rates charged in some Australian states and about half of proposals in Mexico and Ecuador.
- Declining metallurgical-coal prices, which are seen hitting a three-year low amid rising Australian exports to China, will lead U.S. producers to shut more mines, according to Alpha Natural Resources. âI wouldnât be a bit surprised if we looked at changes in the back half of the year,â Alpha Chairman and CEO Kevin Crutchfield said in an interview with Bloomberg. âItâs going to affect everyone,â he added.
