New Nuclear power capacity in Korea, Japan to affect LNG balances: PIRA Energy

PIRA Energy Group reports that 2015 will witness the biggest change on the demand for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan.

NYC-based PIRA Energy Group reports that the biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. The latest EIA update on U.S. storage indicated inventories declined, but the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. In Europe, Spanish gas demand is on a downward slope.

Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:
Evolving nuclear power generation situation in Korea and Japan
The biggest change on the demand side in the upcoming year for LNG balances stems from the evolving nuclear power generation situation in Korea and Japan. Demand losses will occur in Korea, while in Japan, PIRA has pushed Japanese nuclear restarts to late 4Q from January, with no significant capacity coming on until late 2015. Thereafter, a significant surge in year-on-year LNG production will begin in late 2015 with the emergence of the first U.S. LNG exports, followed by more volumes from Australia. PIRA is building in new supply from six new LNG trains in 2015 with a capacity to produce 72-mmcm/d of LNG supply. If the plants come online as planned, it would be the single largest year-on-year increase (145-mmcm/d year-on-year) in capacity since 2010.

Fallout stemming from latest Polar Vortex
The latest EIA update on U.S. storage indicated inventories declined by 107 BCF -- a 180 BCF week-on-week decline. But the market’s attention appears fixated on the fallout stemming from the latest polar vortex and potential for below-normal temperatures into February. Our latest outlook already shows a U.S. storage carryout of less than 1.3 TCF assuming normal GWHDDs during February and March. Given the threat of additional cold weather, NYMEX gas futures are likely to see continued support until more concrete signs of a sustained weather reprieve are seen.

Spanish Gas demand is on a downward slope
Underlying Spanish gas demand is on a downward slope again. While it may not mean a lot for NBP, it is significant for LNG trade in and around Europe. Up until now, the one country that needed to consume LNG in Europe was Spain because it did not have enough pipeline import capacity to rely solely on pipeline gas. What's interesting is that in January and February of 2014 scheduled flows on the Duran and Medgaz pipelines are higher than what is widely considered each pipeline's capacity. Based on these scheduled flows, we must then assume that pipeline import capacity is closer to 66-mmcm/d rather than 62-mmcm/d.

NYC-based PIRA Energy Group reports EC report on energy prices and costs reveals interesting dynamics for end-users. In the U.S., continued shocks of polar cold have jolted natural gas prices and drawn coal stocks to their lowest level since prior to the recession. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

EC report on energy prices and costs reveals interesting dynamics for End-Users
During a week featuring several policy documents and announcements, the EC report on Energy prices and costs provided insights into the end-user price and demand developments. The report highlights huge ranges in end-user electricity prices not only across member states, but also within each market and sector. Additionally, the report hints at steep elasticity of industrial demand to prices, signaling significant demand destruction is occurring.

U.S. Coal stockpile estimates
Continued shocks of polar cold have jolted natural gas prices and drawn coal stocks to their lowest level since prior to the recession. PIRA estimates that total U.S. electric power sector (EPS) coal inventories will approach 134 MMst by month end. This reflects 58 days of forward demand (versus 77 days one year ago).

Chinese prepayment could help reduce Russian fas import price
Gazprom may reduce the price of gas sold to China in exchange for an advance payment of several billion dollars. China persistently demands lower prices. However, the idea of a prepayment seems to be perceived more positively. China repeatedly tested this scheme with Rosneft and it proved to be very effective

Natural Gas, Crude Oil reign supreme, Gold, Silver weakens on Fed tapering

Unusually cold weather has caused huge drawdowns on gas storage. Gas stockpiles were seen at 2.423 trillion cubic feet as of January 17, 13.2% below the five year averae and 19.8% less than year-ago supplies

Extreme cold weather in USA pushed US natural gas futures to a whopping 27% increase in prices in January to $5.325 per MMBTU while at India's Multi Commodity Exchange, natural gas for February delivery rose from a low of Rs 245.70 per MMBTU to Rs 328.10 per MMBTU.

Unusually cold weather has caused huge drawdowns on gas storage. Gas stockpiles were seen at 2.423 trillion cubic feet as of January 17, 13.2% below the five year averae and 19.8% less than year-ago supplies, according to Energy Information Administration data.

US Gold futures for February delivery is down to $1255 an ounce. as announcement of further tapering measures by US Federal Reserve weakened the demand for safe haven assets. US Silver for March delivery has dropeed to $19.385 per ounce.

At MCX, Gold for February delivery is down 0.39% to Rs 29621 per 10 grams with weakness in Rupee provding some support.

Metals has been knocked down for the near term on US Fed tapering news and China's manufacturing data. US Copper fell to a seven week low on Thursday at Comex division of New York Mercantile Exchange. copper futures for March delivery fell to a session low of USD3.231 a pound, the weakest since December 9, before trimming losses to trade at USD3.235 during European morning hours, down 0.15%.

Copper for February delivery at MCX fell 0.54% to Rs 450.50 per kg. 

US Nat Gas price should move to $15 or above to balance market

US Natural Gas prices will have to spike propane parity rates of $15/MMBtu to encourage petroleum fuel burn this winter or to destroy industrial demand till cold weather persists.

The only way to balance a tightening natural gas market immediately is to force demand rationing through higher prices. The natural gas prices should move up to propane parity prices, which is at $15/MMBtu, according to a report by Bank of America-Merrill Lynch (BofAML).

Prices may need to move up to encourage petroleum fuel burn this winter or to destroy industrial demand till cold weather persists. While natgas stocks across the country are not yet critically low, oil parity levels would translate into NYMEX Henry Hub prices of $15+/MMBtu. US natural gas spikes also will temporarily attract LNG from abroad.

Prices of natural gas in North America have been impacted in recent days by exceptionally cold weather. The sharp price move could boost supply in the next few months, the response is unlikely to come in time to temper winter prices, especially in light of continued production freeze-offs. America is highly unlikely to run out of nat gas, as the winter season would be over in the couple of months there would be growth in the production of natural gas.

Frigid weather conditions across the country have driven up heating demand, resulting in a spike in weather-sensitive residential and commercial consumption. . On top of that, gas-fired power generation remains strong, both on an absolute as well as on a weather-adjusted basis, further tightening the market. On the supply side, production freeze-offs are currently running above 1 bcf/d, with the majority in the Marcellus and Utica regions. Combined, the unusually cold
weather has created a run on inventories and a wide storage deficit.

In the view of Bank of America Merrill Lynch, long positions on the March NYMEX nat gas contract seem attractive from a risk-reward perspective for investors. Options markets are also already starting to reflect this sharp upside risk but low deltas still offer a good risk reward.

With prompt natural gas prices spiking due to cold weather conditions and producers selling aggressively on a forward basis, the NYMEX natural gas market has moved into backwardation and near-dated prices are now trading above natural gas prices in 2020. This has widened the backwardation in winter contracts to extreme levels compared to the last few years.

RBI 's existing policy rates

RBI has the unenviable task of managing inflation and at the same time ensuring that credit flow to industry is not hampered due to its tight monetary policy in view of the slow down in manufacturing and GDP growth in..

The Reserve Bank of India (RBI) in  a short while from now will announce the third quarter review of its monetary policy 2013-14 and markets have been speculative in the past few days as the Central Bank is feared to raise key rates in view of the inflationary trends prevaling the economy.

Here are the existing policy rates:
Bank Rate: 8.75%, Repo Rate: 7.75%, Reverse Repo Rate 6.75% and Marginal Standing Facility 8.75.

RBI has the unenviable task of managing inflation and at the same time ensuring that credit flow to industry is not hampered due to its tight monetary policy in view of the slow down in manufacturing and GDP growth in general. Indian economy will be blessed with abundant food grains this year following good monsoons and higher acreage seen in rabi crop.

The interest rate hike cycle has certainly peaked while the Reserve Bank of India (RBI) may still be feeling constrained to go in for an easy monetary policy tomorrow, an ASSOCHAM (Associated Chamber of Commerce and Industry) assessment paper has noted.

It said while the business and industry want the central bank to go in for bold measures and announce major cuts in the policy rates, the expectations may not be met by the RBI, adds the ASSOCHAM paper.

“There is a pressure building again on the Indian Rupee as emerging markets’ currencies weaken against the USD. For us in India, the currency depreciation could mean more of imported inflation. This development along with further tapering plans of the US Federal Reserve in its bond buying stimulus programme is sure to weigh on the Governor Dr Raghuram Rajan,” said Mr Rana Kapoor President ASSOCHAM.

In so far as the pure play of interest rates is concerned, there are a number of sectors like consumer durables, automobiles, real estate and MSMEs which would like RBI to at least drop the policy rate moderately, points out the ASSOCHAM paper.

The Federation of Indian Chambers of Commerce and Industry (FICCI) economic outlook survey has forecasted 4.8% GDP growth for the Indian economy this year, marginally below the earlier estimate of 5%.

India Gold futures eyeing 30,000 levels, US futures $1300

The trend in gold futures for February delivery on India's Multi Commodity Exchange (MCX) looks sideways to bullish for the day. Intra-day traders are advised to use buy on dip strategy for the day.

Gold futures at India's Multi Commodity Exchange (MCX) is eyeing Rs 30,000 per 10 grams while US Gold futures is targetting $1300 per ounce levels as a series of macro-indicators and a weak rupee are having an impact on the yellow metal.

US Futures for February delivery rose to a high of $1279.8 before falling back to $1266.2 an ounce while Gold futures for February delivery at India's MCX is up 0.48% to Rs 29660 per 10 gm.

The trend in gold futures for February delivery on India's Multi Commodity Exchange (MCX) looks sideways to bullish for the day. Intra-day traders are advised to use buy on dip strategy for the day.

“For intra-day, support for the commodity is seen at 29400 and below that it may test level of 29250 while resistance is seen at 29800 and above that it may test level of 30000” said Amrita Mashar, Research Analyst at Commodity Online.

“One can enter into buying side near 29550 with stop loss of 29400 for target near 29750 and 29850,” she added.

INR depreciation against USD by 0.23% which provided support to Gold prices in opening hour. Meanwhile, COMEX Gold also gained near to $ 1275 an ounce on continuous buying sentiment and boosted the safe haven appeal among the investors.

Key highlights from Barclays weekly report on gold:

-Net fund length in Comex gold rose for the fifth straight week ended 21 January, a trend not seen since October 2012. Speculative positioning has slowly edged higher and is now at its highest since mid November. Although net non commercial positions are relatively positive, gross longs and shorts are not aggressively elevated in either direction, suggesting scope for significant moves following the FOMC meeting this week.
- The latest data from the US Mint showed that gold coin sales stand at 129koz so far in January, most of that achieved during the first half of the month, indicating a slowdown last week. This still leaves January as the highest month since the blockbuster sales in April (246.5koz), but it is not unusual to see high gold coin sales in January as collectors buy new issues. January sales have already reached 12% of full year 2013 sales (1.095Moz

News that can drive gold:

-India's Finance Minsister has indicated that the government may review the import restrictions on gold by March end when the present financial year 2012-14 comes to an end. He said that considerable progress has been achieved in bringing down the current account deficit to below $50 bn as against $88 bn last year. Hoewever, gold smuggling has increased. Barclays Research in a weekly note pointed out that in the event of relaxing of import restrictions, India gold demand is set to recover. in seasonally strong periods last year, gold demand remained weak on import curbs, it said.

-Pakistan has issued a 30-day ban on imports as it is being used to smuggle gold into India, news reports said.
-Weak Rupee is expected to provide strong support for gold prices in India.
-- US Federal Reserve based on the assessemnt at the upcoming FOMC meeting may go for additonal tapering of $10 bn per month which could be negative for gold 

On daily charts, COmex Gold for February delivery is quite bullish with an RsI Of 61.34 and MACD in positive territory. But the upward movements will face considerable resistance at 1290, 1300 levels," Sreekumar Raghavan, Chief Strategist at Commodity Online said.

Taper threatens Hong Kong property

You might not expect the Argentine peso to have much in common with Hong Kong property, but they both could be casualties of tightening by the U.S. Federal Reserve.

Last week’s plunge in the pesoUSDARS +0.84%  has been a sharp reminder of the risks of Fed tapering, and it has renewed fears that Hong Kong’s bubbly property market could soon be tipped over.

This means Hong Kong will be watching particularly closely when the Fed issues its latest policy statement later this week. A continuation of tapering (reduced bond buying) could jolt both local property and equity markets. Despite the influx of mainland Chinese listings in recent years, property stocks still represent a quarter of the Hong Kong equity market, as judged by the market value of the MSCI Investable Universe Hong Kong Index.

The reason Hong Kong property is singled out as a potential taper causality is due to the extent it has gained from quantitative easing in the U.S. The longstanding currency peg to the U.S. dollar means Hong Kong has had to import the ultra-loose U.S. monetary policy, which has left the territory awash with cheap money.

It was during this period of successive Fed QE that Hong Kong banks introduced rock-bottom mortgages based on interbank rates, which helped propel property prices to record highs. Since 2007, property price have increased over 100% despite a succession of measures by the Hong Kong government to tame the market, including heavy transaction taxes for non-residents.

Now analysts warn that a policy shift by the U.S. Fed can do what seemed beyond the power of Hong Kong’s government: it can reverse property prices.

According to new strategy note by Société Générale, Hong Kong property will soon be a casualty of U.S. tightening. It expects 2014 to mark the end of the uptrend in prices. Given how important QE was in pushing prices up, it will have a sting when it exits, they argue, making local property highly vulnerable to subsequent tightening of U.S. monetary policy.

Although bearish views on property are becoming increasingly common, prices have, at least so far, proved remarkably resilient. But despite this, there are some vulnerabilities in the property outlook emerging. One is a slowdown in transactions.

Since the government introduced successive stamp-duty increases, it appears to have had more success curbing sales activity, if not prices.

In 2013, property sales fell by more than a third to a 17-year low with 70,503 transactions, down 39% from 2012, according to figures from the Land Registry. One explanation for the drop in transactions is that traditionally very active mainland Chinese buyers are now looking elsewhere for real-estate investments due to Hong Kong’s high prices and transaction fees.

That seems understandable, as various surveys confirm that Hong Kong property prices are extremely high. According to estate agent Savills, Hong Kong remained the world’s most expensive city in terms of residential and office costs in the second half of 2013, with New York a close second. With a yearly business-accommodation cost of $1,625,000, Hong Kong was more than 50% more expensive than neighboring Asian capitals, such as Tokyo and Singapore.

Another red flag is the apparent disconnect between ever-higher property prices and the prices of developer stocks. Last year, property stocks were down on average 13% year-on-year, with Li ka-shing’s flagship Cheung Kong HK:1 -1.44%   CHEUY +0.20%  the only gainer.

The price of developer stocks could be a leading indicator for the physical market. SocGen warns that 2014 could yet be worse year than last year, and based on the housing-price trend line, prices could still be 30% overvalued.

Such a correction would be significant but still nothing like that of 1998, when prices fell in excess of 60%. Credit Suisse says in a report that they expect a mild correction rather than a collapse in property prices, citing increasing household income and a buoyant employment market.

What could be a swing factor to watch is whether changing monetary conditions in the U.S. filter through to mortgage rates in Hong Kong. There has been no credit-market reaction yet to the changing outlook for property.

Credit Suisse also says it sees no imminent reason for a change in mortgage rates in Hong Kong. We will have to watch if Fed tapering does subsequently have an impact.

Another consideration is the impact of a slowdown in mainland China. Not only have mainland buyers been very active in the market, but so too have Chinese banks lending to Hong Kong property over the past five years.

Tightening monetary conditions in China at the same time as tapering could present a double headwind to property. Then Hong Kong could face more than just a mild correction.

Google buys artificial-intelligence firm DeepMind

Google has acquired artificial-intelligence firm DeepMind Technologies Ltd., reports said Monday, with a Recode report citing a price of $400 million for the London-based start-up. The company was founded in 2012 and employs learning algorithms for use in simulations, e-commerce and games, Reuters said. 

Natural gas climbs to four-year high on U.S. freeze

Natural-gas futures rose Monday to their highest level in about four years amid concerns that extremely cold weather in the U.S. would persist for at least another week.

February natural gas NGG14 +4.65%   rallied for a fifth day in electronic trading, spiking 21 cents, or 4.1%, to $5.40 per million British thermal units. The price marked the highest level since February 2010, according to FactSet data tracking the most-active contracts.

Prices jumped 45 cents, or 9.6%, to close at $5.182 per million British thermal units on the New York Mercantile Exchange.

A major winter storm hit much of the Northeastern U.S. last week, sending temperatures below freezing and causing inventories for natural gas to fall. The U.S. Energy Information Administration reported Thursday that natural-gas supplies dropped 107 billion cubic feet for the week ended Jan. 17.

Meanwhile, a forecaster at the U.S. National Weather Service suggested that the cold-weather now covering much of the country would stay for at least another week.

Many analysts believe the freezing weather may continue to drive demand higher and cause the stockpiles to drop further this week.

“There still seems to be plenty of cold in front of the market, with above-average storage withdrawals [of natural gas] to persist at least into early February,” said Timothy Evans, an energy strategist for Citi Futures.

Meanwhile, March crude CLH4 +0.07%   inched up 5 cents to $96.69 a barrel in electronic trading. Prices rose 2.4% last week on the Nymex, with the March contract losing 0.7% on Friday.

Evans said the start-up of TransCanda’sCA:TRP -1.16%   TRP -1.02%  Gulf Coast pipeline on Wednesday would increase the demand for crude and continue to provide some support for oil prices.

Elsewhere, March Brent crude oil UK:LCOH4 -0.23%   declined 28 cents, or 0.3%, to $107.60 a barrel, and February gasoline RBG4 -0.18%  retreated by 1 cent, or 0.3%, to $2.66 a gallon.