Energy and Natural Resources Market Radar (February 27, 2012)
Strengths
- Crude oil markets touch fresh highs in euro and sterling, as a combination of constructive market balances and escalating geopolitical tensions provide a boost yet again. Brent crude oil gained nearly 5 percent this week to close at a 10-month high.
- Aluminum prices gained 8 percent this week. This could be attributed to the fact that global aluminum production is falling, as revealed in January data published this week showing that the biggest cuts from recent highs are in China. Macquarie Research noted that for the year as a whole, it still projects a small surplus, but the rise in reported stocks so far at 283,000 tons is more than half of its projected annual surplus.
- Pacific Rubiales announced the results of an independent evaluation of its reserves that show that the company’s proven and probable reserves grew by approximately 52 percent when compared to December 31, 2010.
- The HSBC Manufacturing PMI for China rose to a four-month high in February. At 49.7, up from 48.8 in January, the index remained below the 50.0 mark for the seventh time in the past eight months. Improving business conditions in the China should support stronger industrial-related commodities like coal, iron ore, and copper.
Weaknesses
- Macquarie Research highlighted that provisional port export data shows a dramatic fall in Australian iron ore exports during January, sitting at 401,000 tons per year compared with 518,000 tons per year in December. This would also equate to a 1.5 percent year-over-year fall. In particular, Rio Tinto exports were only 182,000 tons per year, the lowest since March 2009. When adding this to Brazilian and Indian exports in January, volumes from the top three supply countries totaled only 753 million tons per year, down 24 percent month-over-month and 9 percent year-over-year, the lowest since June 2009.
- The newest data from the World Steel Association on Tuesday showed that global steel production fell in January, with output in China down 13 percent, as industrial demand remained weak.
Opportunities
- Reuters reported that China's imports of copper concentrate are expected to rise by about 9 percent year-over-year to 580,000 tons per month in 2012, according to Antaike.- Roubini Global Economics sees oil prices staying elevated for 2012 as heightened tensions between Iran and its neighbors and the international community pose significant risk to oil supplies.
- In a recent Deutsche Bank survey, the company found that since 1999, analysts have underestimated oil prices by an average of 27 percent over the past 13 years. Factoring this information into prediction models implies an average oil price of $135 per barrel.
- China's imports of copper concentrate are expected to rise by about 10 percent in 2012 on strong smelter demand, curbing end-users' appetite for overseas purchases of the refined metal, traders and analysts said on Thursday. Concentrate imports would rise to an average of about 580,000 tons per month this year, compared to 531,000 tons per month in 2011, said Yang Changhua, a senior analyst at state-backed research firm Antaike.
Threats
- U.S. Interior Secretary Ken Salazar told a House Appropriations Committee panel that his agency is examining the possibility of raising royalty rates for onshore oil drillers by 50 percent, increasing the rate for onshore oil drillers from the current 12.5 percent to 18.75 percent—the amount currently paid by U.S. offshore oil production companies.
- Bloomberg reported that Mozambique is revising its petroleum laws to include liquid natural gas (LNG). This should not surprise investors. The industry in neighboring Tanzania had delayed drilling activity while the production sharing contract and fiscal terms were renegotiated (to support gas and LNG commercialization), whereas the companies in Mozambique pushed ahead with drilling.
- Workers at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia will continue to stop working until the company pays them the new increased wages as agreed under a deal in December that ended their three-month strike, said Virgo Solossa, Head of Organizational Affairs at the union. Workers who joined the strike were not paid the increased wages, Solossa said. They also demanded the company replace officials in charge of operations at Grasberg, he added.
