Energy and Natural Resources Market Cheat Sheet (January 10, 2011)

Strengths

• Steel scrap prices have started 2011 in the same manner they exited 2010, on a rapid upward trajectory. The Metal Bulletin Ferrous Scrap Index CFR Turkey climbed 3.4 percent to nearly $497 per ton on Thursday amid a slew of new deals.
• The Platts premium hard coking coal assessment surged $14 per ton on Wednesday to $270 per ton Australian free-on-board (FOB) value as buyers scrambled for tonnages to replace cancelled cargos. The price has now risen 14 percent over the past month following the disruption of coal mining in Queensland, Australia because of heavy rains and flooding.
• Nucor announced its second price increase ($60 per short ton) on carbon flat rolled products this week, bringing its price for hot rolled coil (HRC) to $800 per short ton. AK Steel also announced a price hike of $50 per short ton this week.
• Mid-term uranium prices rose from $62 to $64 per pound of yellowcake (U308) over the past week. Long-term uranium indicator prices rose from $65 to $67 per pound, according to Tradetech.

Weaknesses

• U.S. coal producer Peabody Energy cut its 2010 profit forecast, citing the rains and flooding in Australia.
• Copper prices fell 2 percent from record high levels this week on profit taking and concern of further monetary tightening in China and other emerging markets.

Opportunities

• Anglo American, one of Australia's top met coal miners, said that it could take weeks to pump water out of its mines caused by massive flooding in the Queensland state.
• China aims to expand its oil refining capacity by 20 percent by adding roughly 2 million barrels per day to boost its total capacity by 2015, the National Energy Administration said.
• China will intensify the search for domestic resources such as oil, coal and metals in the next five years to meet rising demand, the Ministry of Land and Resources said on Friday. China's Demand for resources will rise because of its industrialization and urbanization during the country’s 12th Five-Year Plan (2011-2015), the minister said in a report posted on the ministry website.
• In order to catch up with the growing demand in domestic and international markets, Indonesian coal miners expect to produce 340 million tons of coal in 2011, an increase of 23 percent from 275 million tons last year. Supriatna Suhala, executive director of the Indonesian Coal Mining Association, said almost all coal miners in the country had expressed their commitments to expanding their production in 2011. “As the global economy recovers, we expect to see growing demand for coal both at domestic and international markets in 2011,” he said. Of the planned 340 million tons of coal produced in 2011, the association estimates 20 percent of them around 70 million tons will be allocated to fulfill domestic market demand, while the remaining 80 percent will be exported.

Threats

• An analyst report highlighted that exports of Mexican heavy oil will fall to the lowest level in 15 years in 2011 once a local refinery is upgraded. This could hit the profitability of U.S. refiners emerging from the bruising 2008-09 market downturn. The start up of a major refinery project will cut Mexico’s Maya heavy crude oil exports by some 110,000 barrels per day this year, according to government data.
• Australia's flood-stricken coal industry may be disrupted for months after key rail and road links were washed away. Authorities said on Friday that some infrastructure could take years to repair. The floods have swamped mines in the state of Queensland, paralyzing operations that produce 35 percent of Australia's estimated 259 million tons of exportable coal. Australia accounts for two-thirds of global exports of coking-coal, which is needed to make steel.