Energy and Natural Resources Market
Strengths
- Brent crude prices finished the week slightly higher at nearly $111 per barrel on geopolitical issues in the Middle East and stronger economic data from China.
- China’s steel output rose in early August. China’s daily crude steel output for the first 10 days of August rose 2.7 percent to 2.14 metric tons per day (tpd), versus 2.08 metric tpd in the last 11 days of July. This recent figure annualized to around 760 metric tpd versus an output of around 709 metric tons in 2012. Year-to-date output through July totaled around 441 metric tons, up about 9 percent year-over-year.
- Copper rose by 1.1 percent on Thursday, driven largely by more positive sentiment following China’s first “expansionary” HSBC PMI reading since April, at 50.1 in August, up from 47.8 in July. In Europe, Markit’s Composite Eurozone PMI was also up, reaching 51.7 from 50.5.
- The global copper market slipped to its first deficit for seven months in May, according to the International Copper Study Group (ICSG), on rising demand in China and the U.S. ICSG reported apparent copper demand from top consumer China in May was at its highest level since December 2011, while usage in the U.S. was at its highest since March 2012.
Weaknesses
- World industrial production was flat in June, the latest comprehensive data from economics group CPB shows. It also highlights the extent of the slowdown in growth in emerging economies’ factory output this year, with output expanding just 1.2 percent over the six months, its slowest rate over such a period since April 2009.
- After reaching a year-to-date high last week, the Baker Hughes U.S. rig count fell 15 rigs to 1,776 this week and remains 7 percent, or 122 rigs below year-ago levels.
Opportunities
- According to Wood Mackenzie, by the year 2020, 70 percent of China’s oil demand will come from imports. Reported by the Financial Times, analysts at the Edinburgh-based group, one of the most respected analysts of the oil market, said Chinese net oil imports would rise to 9.2 million barrels a day by 2020. The figure includes refined products such as diesel and gas as well as crude oil.
- The number of ships waiting to load coal outside of Dalrymple Bay/Hay Point (the world’s largest met coal port in Australia) increased by 7 percent to 32 ships. This is a fresh 4 month and coincides with spot met coal price increases recently.
- Chinese steel inventories are still falling. Chinese steel inventories in warehouses totaled 14.8 metric tons at week ending August 16. This change represents the 22nd consecutive weekly decline and compares to a 52-week high of 22.6 metric tons in March.
Threats
- Proposed rule changes for metal warehouses and increased scrutiny by regulators are likely to unleash stored aluminum, adding to the global surplus and forcing more smelters to shut. However, the shift out of financing deals may take years and the resulting cuts in production capacity may take even longer. CRU estimates it will take until 2017 for the knock-on effects of new rules to force shutdown of 0.7-1.0 metric ton of capacity per year outside China compared to forecasted rise in aluminum surplus of 0.8-1.0 metric ton in 2014.
- Reuters reported that Britain’s North Sea energy output will fall this year more sharply than forecast in February as aging fields grow less productive and need more maintenance, and it will not start to pick up until 2015, Oil & Gas UK said. The industry association also highlighted in a report on Wednesday that the production efficiency of existing North Sea oilfields “remains in worrying decline” despite an upsurge in investment this year.
