Energy and Natural Resources Market Radar (June 23, 2014)
- North American crude oil producers maintained leadership within the resource sub-sector as the price of West Texas Intermediate (WTI) breached $107 a barrel. Accordingly, Anadarko Petroleum, Cimarex Energy and Whiting Petroleum all made fresh 52-week highs along with numerous other oil producers.
- Gold- and silver-related equities outperformed this week. Bullion prices gained following the Federal Reserve’s decision to hold off a rate hike as well as in response to geopolitical instability in the Middle East. Both Franco-Nevada and Royal Gold outpaced the natural resources benchmark.
- The utilities sector reacted positively following Fed commentary this week that an interest rate increase is not expected in the immediate future. Nextera Energy and NRG Energy returned 3.2 and 2.8 percent on the week, respectively.
- The price of iron ore continues to trade below $100 per tonne on the seaborne market on weak demand from China. Moreover, the dry bulk shipping freight rate is down over 40 percent from its high set in March. Knightsbridge Tankers underperformed by 270 basis points.
- Base metals equities lagged the natural resources subsector this week, due in part to rising nickel inventories on the London Metals Exchange. Sherritt International fell by 8.5 percent in the period.
- Food stocks were mixed on the week, but generally underperformed the broader market. ConAgra Foods fell 12 percent this week after the company cut its second-quarter estimates on disappointing sales within the private-label division.
- Global exploration and production spending in the oil and gas industry is expected to reach $712 billion in 2014, up 6.2 percent from 2013. This would represent the fifth consecutive year of annual worldwide spending gains since the 2009 downturn.
- A Senate panel is looking to bypass President Obama in order to provide a permit for the Keystone XL pipeline. If approved, Keystone XL’s Northern leg could transport 600,000 barrels per day of crude oil from Hardisty, Alberta to Steele City, Nebraska. Shipping costs versus rail would be approximately $6 to $7 lower.
- Peru proposed a new tax stability contract for mining companies. The contract locks in tax rates for 15 years on a minimum investment of $500 million in order to boost private investment in the country. Mining companies with big projects in Peru such as Southern Copper, MMG Ltd. and Newmont Mining, would likely benefit under the new tax system.
- Lightweight high-strength steel parts won’t be used in vehicles until 2017, due to a five-year lag from concept to production in the automobile sector, according to the president of Steel Market Development Institute. Top steel makers maintain steel will be preferred for vehicle manufacturing as required weight reductions can be achieved in a cost-effective and environmentally friendly manner.
- Iron ore producers are feeling the pinch. With iron ore prices hovering around $90 per metric tonne to China, the Australian producers are certainly feeling the pinch. For every $1 per tonne decline in iron ore prices, BHP and Rio Tinto together lose $220 million in profit. The Australian industry will be dealt a hit in revenue of $30 billion if prices remain at current levels.