Energy and Natural Resources Market Cheat Sheet (January 17, 2011)
In the USDA’s monthly WASDE report released this week, projected ending stocks of U.S. corn and soybean for the 2010/11 marketing year declined 10.5 percent and 15.2 percent. The projected stock-to-use ratio for U.S. corn is now 5.5 percent, which is the lowest since 1995/1996. Based on December 2011 corn future prices of $5.48, farmers are likely to see record profitability even after taking into account rising fertilizer and seed input costs.
Strengths
- West Texas Intermediate Crude oil futures gained 3.5 percent this week and hit a 52-week high of $91.86 per barrel on Wednesday.
- China’s Lion Fund Management launched the first gold fund in China last month. The fund has met its goal of raising $500 million under China’s QDII scheme.
- China’s daily crude steel production in December increased 5 percent from the previous month as many steel mills in Hebei province resumed production, data from the China Iron & Steel Association showed.
Weaknesses
- The Baltic Dry Index has fallen to a 21-month low as a result of the negative impact of flooding in Queensland state in Australia.
Opportunities
- Cliffs Natural Resources Inc. agreed to buy Consolidated Thompson Iron Mines Ltd for about $4.95 billion to add Canadian output. Cliffs will pay C$17.25 a share, the company said in a statement. The deal will give Cliffs production in Quebec that’s shipped to Asian customers.
- Alcoa plans to restart idled capacity at three smelters, adding 137,000 metric tons of output this year. Alcoa will restart potlines at Massena East in Massena, New York, Wenatchee Works in Malaga, Washington, and Intalco in Ferndale, Washington, the company said in a statement. The plan will add about 260 jobs and boost Alcoa’s annual production by 200,000 tons after this year, the company said.
- In its Short Term Energy Outlook, the U.S. Energy Information Association (EIA) expects “continued tightening of world oil markets over the next 2 years.” The EIA expects WTI crude pricing to average $93.50 per barrel WTI this year and $97.50 per barrel in 2012.
- The State Grid of China has announced it plans to spend around Rmb290bn in 2011 on expanding and upgrading its network (a rise of 10 percent year-over-year).
Threats
China’s net imports of oil products may fall 23 percent this year as the world’s fastest-growing economy slows and domestic refiners expand capacity, according to the CNPC.
