Energy and Natural Resources Market Cheat Sheet (April 18, 2011)
Strengths
- Copper inventories in warehouses monitored by the Shanghai Futures Exchange dropped 4.8 percent.
- China has exported 42,600 metric tons of refined copper during the first two months of 2011, eight times the amount in the last year.
- Mexico (up 13 percent year over year) and Argentina (up 20 percent year over year) became the largest contributors to mine supply according to Gold Fields Mineral Services (GFMS), GFMS estimates a rise of 2.5 percent to a record 22.9kt, driven by growth from the primary and Lead/Zinc sector.
- Seasonally adjusted US auto sales for the month of March remained above 13 million vehicles per year; the sales figures crossed the 13 million vehicle level the second time since the cash for clunkers program that ended on Nov 1, 2009.
- The National Bureau of Statistics reported this week that China’s crude steel rose 9 percent to 59.42mt in March from a year ago and 9.4 percent higher than February’s 54.3mt. This boosted China’s production to the second-highest level on record amid higher demand from builders.
- China’s Gross Domestic Product (GDP) increased 9.7 percent in the first quarter, which was higher than expected and despite inflation rising to the highest level in almost three years.
Weaknesses
- Manufacturing growth, which makes up about 80 percent of India’s industrial production index, was at 3.5 percent for the month, down from 16.1 percent a year ago.
- A drop of 16 percent to 8.37 million tons for the first quarter iron ore shipments was reported by Fortescue’s due to heavy rains in Australia, the company said it will raise output to 12 million tons in second quarter.
- China Iron and Steel Association reported a decline in China’s daily crude steel output in the last ten days of March to 1.922 million tonnes per day.
- After the African Union said Muammar Gaddafi had accepted a roadmap to end the civil war in Libya, as a result Brent crude fell below $126. Furthermore, Brent crude fell sharply to below $122 and U.S. crude dropped by $2 a barrel this week on concern high fuel prices will destroy demand.
Opportunities
- China’s preliminary March trade data shows a 29 percent month over month increase in copper imports. This could provide more support to this metal, which ended the week at a one month high.
- Gasoline is crowding out retail sales at rapid pace, its share of total retail sales exploded higher in March to 10.72 percent from an upwardly revised 10.49 percent in February.
- A Transocean owned rig has drilled the deepest-ever water depth well off the coast of India, drilling in 10,194 feet of water, more than the previous record of 10,011 feet.
- Diego Hernandez, CEO of state mining giant Codelco, said this week that the global salmon farming industry could need up to 50,000 tonnes of copper a year to build rearing cages thanks to the metal’s anti-bacterial qualities.
- One of the world’s main suppliers of grain, Argentina, may revive a controversial tax system on grain export. A similar plan to raise taxes on soy exports in 2008 sparked nationwide farmer protests that rattled global commodity markets and hit the popularity of President Cristina Fernandez, who plans to bid for re-election in October.
- The Association of American Railroad reported this week that Major Class 1 cross-continental railroads hauled almost 200,000 multi-modal shipping containers, which was easily a record for this time of the year, conforming business survey data suggesting the U.S. economy has entered a mini boom as cheap money revs up the recovery.
Threats
- Although copper prices have almost quadrupled after a two-year rally, largely driven by the belief that China has an insatiable appetite for this metal. Evidence recently surfaced of previously unreported copper stockpiles, which shows signs of about 15 percent of the country’s annual consumption of Copper hasn’t been yet put to use. Chinese buyers are facing a dual problem of higher copper prices and the government’s aggressive move to tighten credit.
- Eskom, a South African power supplier, has said power supply is likely to remain tight for the next five years; a potential risk for the Platinum Group Metals (PGMs) production.
- Plans to halt the approval of new aluminium plants in China to tackle serious overcapacity in the industry. The decision would put a hold on investment worth $ 11 billion.
- Mohammad Ali Khatibi, governor of OPEC, was quoted last week as saying that the global oil market is oversupplied; despite prices that have been pushed up by upheaval in the Middle East.
- Global 2010-11 cocoa surplus estimates last week have expanded to 184,000 tonnes and prices look set to fall further from the 32-year high hit last month. Cocoa exports from Cameroon, the world’s fifth largest grower, hit 186,305 tonnes by the end of March from the start of the season in August, up 21 percent year over year.
