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Experts maintained stable outlook for oil & gas and base metal industry. However, the long term outlook for thermal coal is positive, with 220 GW of coal-fired electricity generation capacity expected to come online ..
09 Mar 2010
LONDON (Commodity Online): Experts maintained stable outlook for oil & gas and base metal industry. However, the long term outlook for thermal coal is positive, with 220 GW of coal-fired electricity generation capacity expected to come online over the next 5 years, requiring over 750 Mt of coal.

The outlook for oil and gas prices remains broadly unchanged, with oil prices still expected to rise. Oil prices have hovered around USD 70 per barrel for the past three months. This relative stability at an economically viable level is expected to lead to further growth in activity and investment.

Emerging markets are expected to be the prime drivers of industrial growth, including China which, despite a rise in a key interest rate and a hike in its central bank reserve requirements, is still expected to grow rapidly and see a sharp rise in demand for energy during 2010.

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Tougher environmental regulations around the world, and particularly in the US, are expected to increase demand for natural gas, which is a cleaner and cheaper source of energy than other fossil fuels such as coal, lifting its market share. However, oversupply conditions rule out any significant natural gas price increase over the near-to-medium term.

Meanwhile, in India, the Kirit Parikh committee submitted its report to the Petroleum Ministry on 03 February 2010. The expert panel, set up with the intention of establishing a new fuel policy for the Indian government, recommended deregulating petrol and diesel prices, and raising cooking gas and kerosene prices by INR 100.00 (USD 2.17) per cylinder and INR 6.00 (USD 0.13) per litre, respectively. If these proposals are adopted by the Indian government, they would provide relief to oil marketing companies in India, which currently absorb the cost of these subsidies.

In its latest Oil Market Report, dated 11 February 2010, the International Energy Agency (IEA) forecast growth in worldwide demand for oil of 1.8% y-o-y to 86.5 mn barrels per day in 2010 (+0.3 mn barrels per day from the November 2009 forecast), taking into account higher GDP growth projections by the IMF.

Economic indicators remain strong, with Chinese crude oil imports rising by 33% y-o-y to 17.1 mn tonnes in January 2010. However, considering that major capacity additions are looming in China, India and the Middle East, and taking note of the upward trend in oil prices.

Growth in the oil tanker fleet is expected to remain at a robust 5% CAGR over the next three years, reflecting the significant order backlog for oil tankers. This fleet growth will suppress freight rates over the near term, as the global economic recovery is still at an early stage. However, as economic conditions improve further, there is an expectation of higher prices for oil products and higher freight rates during the latter half of 2010.

Meanwhile, the outlook for base and ferrous metals broadly remains unchanged over the long term, although concerns over liquidity tightening measures and sovereign default risk in Europe pose a near-to-medium term risk to the global recovery and industrial metal consumption. There is a possibility of anticipated stagnation in aluminium and copper prices with moderate downside potential from current levels over the near-to-medium term, as high inventory levels and a potential increase in supply from mothballed production facilities are likely to offset the positive impact of economic recovery on demand growth.

Medium term demand fundamentals for steel have softened marginally as governments across the globe tighten their belts and begin implementing exit strategies for unwinding stimulus and monetary easing measures. Despite the prospect of moderation in stimulus-led demand, fragmentation in the steel industry will make it difficult for producers to effectively limit supply.

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