Energy and Natural Resources Market Radar (January 20, 2014)

Energy and Natural Resources Market Radar (January 20, 2014)

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Strengths

• U.S. aluminium premiums jump to record highs, rising 25 percent in the past few days to 19.5c/lb, renewing concerns about dwindling supplies and rising costs even as market struggles with constrained LME inventories.
• The price of nickel gained 6 percent this week to $6.67 a pound, the highest level since mid October as news flow surrounding the Indonesian government’s ban on raw mineral exports heats up.
• U.S. industrial production rose 0.3 percent from the prior month in December, the fifth consecutive monthly expansion. In the fourth quarter of 2013 output was 6.8 percent higher (at an annualized rate) than in the third quarter, the fastest growth since 2010 and an all-time high, finally overtaking the pre-financial crisis peak set in the fourth quarter of 2007.

Weaknesses

• BHP Billiton reportedly settles February monthly pricing for coking coal at $138-139/t fob (HCC Peaks Down; -$4-5/t m/m), below the initial offers of $141/t fob and the first quarter 2014 price of $143/t although above the current spot price of approximately $132/t.
• South African platinum group metals mine production in November was 5 percent lower than last year and 11 percent lower than in October, according to data released by Statistics South Africa. The ongoing strikes, which began on November 3, would have accounted for much of the decline.
• The Capesize dry bulk freight shipping market has nosedived since the start of this year, with time charter rates falling from $38,999 per day to $13,611 per day to begin this week, a drop of 65 percent.

Opportunities

• State-owned China General Nuclear Power Corporation (CGN) will put another five nuclear reactors into operation this year, increasing its total electricity capacity by over two-thirds from a year ago to 14 Gig watts, the company said. China's plans to increase its reliance on nuclear power has turned it into one of the few growth areas for the industry as countries such as Germany and Italy phase out their nuclear plants in the wake of Japan's 2011 Fukushima disaster.
• Copper is seeing price support. Growth in copper mine supply over the next three years has been revised lower by 18 percent (1.1Mt) by the International Copper Study Group (ICSG). This is equivalent to a year’s production at Escondida, the world’s largest copper mine. The revision is because “significant delays are expected in many projects,” according to the ICSG, which is symptomatic of an industry under pressure to streamline spending.

Threat

• The U.S. federal government is set to take its first formal step towards capping the role of investment banks in physical commodities by issuing a notice to seek public comment on the topic.
• In 2014, concerns over excess iron ore supply again look likely to dominate sentiment towards to the sector, which could negatively impact the large global mining companies in the back of the year given their exposure to the commodity.