Energy and Natural Resources Market Radar (August 12, 2013)
Strengths
- The price of copper climbed 4 percent this week to its highest level in two months, partially due to July’s industrial output that was better than expected from China.
- China’s copper imports for July rose to a fourteen-month high, while iron ore imports also hit a record high. From a year ago, China’s copper imports rose 12 percent to 410.7 thousand metric tons (tmt), the metal’s third-straight increase. China’s iron ore imports surged 26 percent from a year ago to 73.1 million metric tons (mmt), according to the General Administration of Customs.
- China’s passenger car sales rose 10.5 percent year-over-year in July to 1,237,600 units, according to data from the China Association of Automobile Manufacturers (CAAM). This was a slightly faster rate than June's 9.3 percent. Within that total, SUVs, typically larger than average, rose by 45 percent to 235,000 units. Strong continued growth in China is very positive for palladium, which derived 12 percent of its total demand from Chinese auto catalysts in 2012, which is up from just 4 percent in 2008.
- There is no stopping the shopping in China when it comes to gold jewelry, as seen in July’s government data. Although down from April’s peak and adjusting for seasonal pattern demand, it is firm at a much higher level than a year ago. This is very supportive for the gold price.
Weaknesses
- The price of corn fell 2 percent this week to $4.65 a bushel, which is a fresh thirty-five month low. Expectations were that rain and warmer temperatures would further improve this year’s harvest.
- Uranium prices are at their lowest level since late 2005, yet new primary mine supply is still coming on line. North American miner Ur-Energy announced that it started production at its Lost Creek ISL uranium mine in Wyoming.
- Latest data from the China Iron and Steel Association (CISA) shows that Chinese crude steel output fell 2 percent sequentially to 761 million tons per annum (mtpa) during the last eleven days of July. Output for CISA member mills dropped to 611 mtpa, the lowest since mid-March.
Opportunities
- BHP Billiton signaled that it will expand in the shale oil and gas industry in the U.S., forecasting that global commodity demand will jump 75 percent over the next fifteen years. “It’s my intention to make us hugely proficient, if not one of the leaders in the shale gas and oil business,” Andrew Mackenzie, CEO of the Melbourne-based company, said in an interview.
- Oil explorers that are focused on high-margin shale drilling from Texas to North Dakota are set to outperform Big Oil this year. EOG Resources, Pioneer Natural Resources and Continental Resources are poised to reap bigger returns for investors than that of energy titans fifteen times their market value. These explorers will devote almost all of their drilling capital to higher-margin, domestic crude wells, said Gianna Bern, founder of Brookshire Advisory and Research Inc. in Chicago and former BP crude trader. Houston-based EOG is estimated to more than triple their profit in 2013 to $1.92 billion. The domestic price rally “is bullish for U.S. shale development and benefits producers with a high U.S. production profile,” Bern said in a telephone interview. He continued, saying that U.S. shale “is where the growth is.” West Texas Intermediate, the benchmark crude for onshore U.S. oil, has risen 16 percent this year as new pipelines and rail links eroded a supply glut in the Great Plains. London-traded Brent, the basis for two-thirds of international prices, fell 2.2 percent. This undermined major international producers and contributed to second-quarter earnings from Exxon Mobil and Royal Dutch Shell, which disappointed investors last week.
- Chile foresees mining investments of $112 billion in the next eight years, compared to the $104 billion that was estimated in November 2012. This is due to the incorporation of nine new projects for a total of $3.6 billion, along with another twenty initiatives that have updated their investment budgets, according to Mining Minister.
Threats
- Hedge funds and money managers nearly doubled their net shorts in copper futures and options last week, which is the biggest increase in bearish bets since late February, according to data published by the Commodity Futures Trading Commission.
