Energy and Natural Resources Market Cheat Sheet (March 28, 2011)

Energy and Natural Resources Market Cheat Sheet (March 28, 2011)

Strengths

• Oil traded near a two-week high of approximately $106 a barrel this week as continued fighting in Libya fanned concern that unrest in the Middle East will further disrupt supply.
• The latest data release from World Steel shows that February global steel output equated to 1.52 billion tons per annum, up 8.8 percent year-over-year and a new all-time record. China’s 708 million tons per annum was a big part of this. The biggest contributor to the 1.6 percent month-over-month rise was a 7.2 percent pick-up in Europe, back to the 200 million tons per annum level seen in the second quarter of 2010. Japan also posted its highest monthly total since 2008 at 116 million tons per annum.
• US and Canadian demand for aluminum products, as measured by shipments from domestic producers plus net imports, increased by 13 percent year-over-year in 2010, according to the Aluminum Association. Net new orders of aluminum mill products increased by 18 percent year-over-year in January and February 2011. U.S. aluminum premiums continue to rise, supported by warehousing-financing deals, and are now reported at upwards of 6.5 cents per pound delivered in the U.S. Midwest.
• Analysts at Jefferies highlighted that signs of a tight diesel market were apparent even before recent events in Libya and Japan with European diesel cracks already at two-year highs and fuel oil losses widening, suggesting conversion units were operating at near-to-full capacity. These events could tighten the global middle distillate supply/demand balance of approximately 700,000 barrels per day with spare capacity falling to unprecedented levels.
• Iron ore prices moved up during the week after a month-long slide, with The Steel Index 62% Fe assessment CFR China rising 1 percent week-over-week to $166.4 per ton CFR China.
• After collapsing from $67 per pound before Japan’s nuclear crisis to as low as $49 per pound, uranium prices rebounded to trade at $61–$62 per pound late this week.

Weaknesses

• Due to higher coal prices and the Chinese New Year, China’s net thermal coal purchases fell 67 percent to 5 million metric tons last month, hitting a 23-month low. The week long Chinese New Year break affected the power demand last month. Domestic coal demand is expected to remain weak in coming months as heating needs fall and hydropower generation increases.
• Australian thermal prices remained weak on realization of weaker demand from Japan. Newcastle Index price stood at $122.98 per ton on Tuesday, down from $126.32 a week before.
• Toyota, the world’s largest automaker, announced that it will curtail some of its production in North America due to a shortage of parts. This comes after it had already shuttered all of its operations in Japan.

Opportunities

• China plans to start building emergency reserves of coal this year to guard against potential supply disruptions, Wuhu Port Storage & Transportation said. The government aims to begin with 5 million metric tons of reserves, and Wuhu has been chosen to help store the commodity.
• Gold may rally for an eleventh year and average 20 percent higher in 2011 as geopolitical concerns and low interest rates drive investment demand, according to industry researcher GFMS. Prices may average $1,470 an ounce in 2011 and may gain toward $1,500 and beyond, CEO Paul Walker said.
• The Australian weather bureau said one of the country’s key grain regions, Eastern Australia, is expected to see above median rainfall during April through June. The favorable weather conditions will increase the chance of Australia, the world’s third largest wheat exporter, to have another productive harvest after record production in the 2010-2011 season.
• Clarkson Research is forecasting a 5 percent increase in thermal coal imports for Japan this year at 131.4 million tons from 125.3 million tons in 2010. It was predicting a 1 percent decline before the disaster.
• China’s iron ore output should reach 1.5 billion metric tons by 2015 from 1.1 billion tons in 2010.
• Saudi Arabia’s new power generation expansions are geared to use crude oil, according to the country’s junior electricity minister. The country plans to use 540,000 barrels per day of fuel for power generation in 2011, up from 403,000 barrels per day last year.

Threats

• Indonesia has redirected 60,000 metric tons of coal from Japan to China following force majeure declarations by some Japanese companies. The country estimates that if the maintenance of the Japan’s power plants takes about six months, the country may reduce its coal consumption by 5 million metric tons this year. However, if the maintenance takes longer, it will threaten the world’s coal prices.
• According to the Vietnam Steel Association, steel prices in Vietnam are forecast to drop in April and May due to a reduction in construction projects. Steel prices have fallen as much as 400,000 dong a ton from March 21 at some companies in the south. The government has cut some projects as part of its fiscal policy tightening.
• The U.K. raised its supplemental tax on oil production in the North Sea to 32 percent from 20 percent, taking the total tax rate to 62 percent.