Energy and Natural Resources Market Radar (November 11, 2013)

November 10, 2013

3 minute read

Strengths

Natural gas rose for a fourth day on speculation that colder temperatures will lift demand to heat homes and businesses. The price for December natural gas rose to $3.56 per Mmbtu, 1.4 percent above last week’s closing price.
Steel and iron ore exports from Australia’s Port Headland (about 20 percent of global iron ore trade) to China hit a record high of 25.2m metric tons (10 percent above the prior month and 43 percent higher than a year ago) in October, according to data from Port Hedland Authority.
The benchmark lumber price gained 2 percent this week to close at $375 per 1,000 board feet, and is up 10 percent quarter to date.
Forbes reported that the American hydrocarbon energy boom is driving a massive resurgence in domestic manufacturing. The U.S. is the world’s fastest growing and now number one producer of oil and natural gas. The shale hydrocarbon revolution has already driven a 45 percent reduction in oil imports, contributed over $400 billion a year to the U.S. economy, and attracted nearly $200 billion in foreign direct investment in America over the past five years alone. And America is now a net exporter of refined hydrocarbons — manufactured gasoline and diesel – for the first time since 1949 and on track to become a net exporter of natural gas.

China's October data saw a seasonal pullback in most commodity imports, as industrial activity took a breather during the Golden Week holiday. Imports will likely normalize into year end as industrial activity expands moderately.
Latest numbers from the China Iron & Steel Association (CISA) show that average daily crude steel output in the last 11 days of October fell 0.43 percent from the preceding 10-day period to 2.098 million tonnes – the third consecutive decline. A likely contributing factor is that since mid-October margins for flat products have been negative.
Latest U.S. auto sales numbers, important for palladium demand, show that the seasonally-adjusted annual selling rate (SAAR) of light vehicles (cars plus trucks) fell to 15.15 million units in October, from 15.21 million units in September. This is the weakest rate of sales since April.

Manufacturing PMIs – a good and timely indicator of manufacturing output growth – showed an accelerating expansion in almost all key manufacturing countries or regions in October. This should be good for commodity demand, especially base metals
Southern Copper submitted a key environmental study to develop the 120 thousand per annum Tia Maria copper project in Peru to the Mines and Energy Ministry. Work at Tia Maria was suspended in 2011 after violent protests by local residents. The company’s CEO expects work to resume in early 2014 with first production in 2016.

Demand for OPEC crude could fall by a million barrels per day within five years, as North American tight oil chips away at the group’s influence on global markets. OPEC, which has long dismissed North America’s tight oil production surge as marginal, said in its annual report Thursday that shale’s impact could be “significant,” and the combination of production from North America and other rivals would reduce demand for OPEC crude to 29.2 million barrels per day in 2018, compared to 30.3 million barrels per day today. “The strong rise in tight oil supply in the U.S. – and to some extent Canada, which accounts for a little under 10 percent of OECD America tight oil supply – is expected to dominate the medium-term non-OPEC supply volume increases,” the group said in its report. Last year’s OPEC annual report said that “shale oil should not be viewed as anything more than a source of marginal additions.”
The South African parliament deferred mineral law changes to next year. The proposed changes to the 2002 Mineral and Petroleum Resources Development Act include giving the state the right to a free 20 percent stake in all new energy ventures as well as compelling some mining companies to sell part of their output to local processors.