Energy and Natural Resources Market Radar (April 29, 2014)
Strengths
- According to Citigroup, Inc., commodities outperformed equities and bonds in the first quarter, taking the pole position among major asset classes for the first time since the first half of 2008.
- Copper hit a seven-week high on firm demand from China. The London Metals Exchange (LME) three-month copper contract rose to $6,753 per metric tonne ($3.06/lb) on April 24, the highest level since March 7.
- Nickel continued to outperform the rest of the base metals complex as the Indonesia ban started to lower stockpiles in China. The price of nickel on the LME exchange made another 52-week high to approximately $8.35 a pound ($18,400/metric tonne).
- Wheat rose for a fourth day this week on further concern over escalating tensions between Russia and Ukraine, which could disrupt supplies from the Black Sea region.
Weaknesses
- China's stock markets weakened this week after a survey showed manufacturing activity in the world's second-biggest economy was still contracting in April, while the Australian dollar tumbled to a two-week low after data showed surprisingly low inflation.
- The price of West Texas Crude oil declined this week, ending its prior three-week winning streak, partially due to rising U.S. inventories.
- Natural gas futures declined late in the week following a larger-than-expected U.S. stockpile increase, and forecasts for mild weather that would soften demand.
Opportunities
- China will soon start construction on a series of major energy projects, including nuclear and hydropower plants, Premier Li Keqiang said on Sunday, highlighting an infrastructure build-out that could help bolster the slowing economy.
- The government of Niger, the world's fourth-largest uranium producer, is on the verge of renewing an agreement with French state-controlled nuclear group Areva. France obtains 75 percent of its electricity from nuclear energy, and Niger accounts for more than a third of Areva's uranium production.
- China's state stockpiler has bought at least 200,000 tonnes of imported copper stored in bonded warehouses after global copper prices dived to multi-year lows in March, said four sources with knowledge of the matter. Further purchases by China's State Reserves Bureau (SRB) could help absorb the small surplus forecast to weigh on the global refined copper market this year and help support prices that have already dropped nearly 10 percent so far this year.
- China will raise its natural gas supply to as much as 420 billion cubic meters per year by 2020 amid rising demand due to urbanization, a government statement said on Wednesday. The supply increase is also driven by the nation's efforts to mitigate air pollution stemming from an over-reliance on coal, the statement said.
Threats
- Violence, riots and human rights abuses could increase globally as soaring food price rises weigh on the developing world, according to the latest predictions. Warning of further unrest, experts at the Economist Intelligence Unit (EIU) said food prices climbed by 3.4 percent in the first three months of this year, compared with the previous quarter, and the global price of grains, sugar and other farm commodities rose at their fastest rates in 18 months. Irene Mia, the EIU’s regional director for Latin America and the Caribbean, said, “Recent history and many studies tell us lack of food, linked to spiraling food prices, is correlated with a rise in communal violence, riots, human rights abuses and civil conflicts in low-income countries, together with a substantial deterioration of democratic institutions.”
