Energy and Natural Resources Market Cheat Sheet (July 18, 2011)
Strengths
- China’s steel production hit another record high in June. According to data from the National Bureau of Statistics, China produced 59.9mt of steel in June, equivalent to 729 million tonnes per year (a 11.9 percent year-over-year increase and a 2.8 percent month-on-month increase), beating the previous record high of 718 million tonnes per year set in April this year.
- Gold prices hit a new nominal high of over $1,580 and ounce in Wednesday trading as the combination of dovish comments from Federal Reserve Bank Chairman Bernanke and ongoing uncertainty over contagion in European sovereign debt markets saw a further push in the yellow metal. White metals also rose strongly, with the breakdown in wage negotiations in South Africa likely to lead to strikes.
- Corn prices rebounded this week as a WASDE report released earlier this week showed a smaller-than-expected increase in 2011-12 U.S. ending stocks despite a projected record crop, highlighting tight balances for corn.
- Data from the International Trade Commission showed that total U.S. coal exports for the January–May 2011 period was at 44.52 million tonnes, up 37 percent year-over-year.
- Commodities generally rallied this week on economic data out of China. China’s GDP rose 9.5 percent year-over-year in the second quarter, the statistics bureau said, after a 9.7 percent gain in the previous three months. This was higher than consensus estimate of 9.3 percent. Industrial output advanced 15.1 percent in June. Fixed-asset investment, excluding rural households, also rose 25.6 percent year-over-year in the first half, the report showed.
- Japan's ten utilities consumed 31 percent more liquefied natural gas (LNG) in June than a year ago, according to data from the Federation of Electric Power Companies of Japan.
Weaknesses
- Peru's copper production dropped 4.7 percent year-over-year in May to 98,628 tonnes, with big declines from Southern Copper's mines, according to the country's mining ministry. Meanwhile, zinc production fell 6.9 percent year-over-year to 121,253 tonnes and tin by 24.7 percent year-over-year to 2,189 tonnes.
Opportunities
- In its monthly Oil Market Report, the International Energy Agency forecast that oil use will increase by 1.47 million barrels per day to 91 million barrels per day amid growth in emerging economies.
- BHP Billiton agreed to acquire all the shares of Petrohawk Energy for $38.75 per share, representing a total equity value of approx $12.1 billion and a total enterprise value of approx $15.1billion, including the assumption of net debt. The deal adds three shale oil and gas assets across about one million net acres in Texas and Louisiana with proved reserves of 3.5 trillion cubic feet equivalent of natural gas.
- In a report from the Financial Times, U.S. ethanol producers are consuming 40 percent of the U.S. corn crop which is the first time fuel use has exceeded use by farmers for livestock feed.
- China has ordered local governments to phase out a total 2.04 million tonnes of aluminum, copper, lead and zinc smelting capacity in 2011 as part of a multi-year plan to crack down on energy-intensive and polluting industries, raising the target by 13 percent from the prior target set in May. The iron smelting industry was ordered to cut 31.22 million tonnes of capacity, up 17.7 percent from the May target, as issued by the Ministry of Industry and Information Technology.
- China has announced that it will be increasing rare earth exports by 8.9 percent versus first half 2011 and 97.3 percent versus second half 2010; however, on an annualized basis, total rare earth exports will be slightly lower year-on-year. The move comes amid pressure from the World Trade Organization regarding China's virtual monopoly on rare earth supply.
Threats
- BHP Billiton is facing more strikes at its coking coal mines in Australia this weekend after making small progress at talks with the miners earlier this week, a labor union said. Workers will hold 12-hour stoppages at the Gregory mine on July 17, Stephen Smyth, a division president at the Construction, Forestry, Mining and Energy Union in Queensland said. The industrial action follows another round of six-hour stoppages this week at seven coking coal mines owned by BHP Billiton Mitsubishi Alliance in Queensland’s Bowen Basin, he said. The next round of meetings with the management will be held next week.
- Saboteurs blew up an Egyptian pipeline distribution station in northern Sinai that supplies natural gas to Israel, the MENA news agency reported. This marked the fourth attack on facilities supplying Egyptian gas to Israel this year.
