Tuesday, January 31, 2023

U.S. Oil Refiners Set for Strong 4Q Earnings as Margins Stay High



U.S. oil refiners are expected to report higher fourth quarter earnings thanks to strong demand and healthy margins from processing crude oil into motor fuels, said analysts.

Profits last year from turning oil into gasoline, diesel and jet fuel hit multi-decades highs as plants ran full bore to meet rising travel and exports demand. Profits surged into the stratosphere for a sector that had been largely written off as the first victim of the energy transition.

Valero Energy, the second-largest U.S. refiner by capacity, kicks off earnings on Thursday with a projected per share profit of $7.19, according to Refinitiv, nearly three times the $2.47 of a year ago.

Top refiner Marathon Petroleum (MPC.N) is forecast to show a $5.70 per share profit, compared to $1.27 a year ago, while Phillips 66 could deliver a $4.46 per share, compared to $2.88 a year ago, according to Refinitiv. Both are scheduled to report on Jan. 31.

“Refiners are tied as the best energy sub-sector in 2022,” alongside oilfield services, wrote Jason Gabelman, a research analyst at Cowen, in a recent note.

The U.S. crack spread , a measure of the profit from buying oil and selling gasoline and diesel, peaked last quarter at $45, more than double the peak in the same period last year.

The fourth quarter could far exceed pre-pandemic profits, said Tudor Pickering Holt analyst Matthew Blair. Industry profit for the quarter could average $3.95 a share, “only a hair below full-year” 2019 profit for the sector, he wrote in a note.

Results benefited from margins on diesel, a historically wide spread between light and heavy crudes, and refiners maximizing their processing last quarter, Blair said.

Margins on diesel and other distillates rose $8 per barrel, to about $58, triple the margins in the same period last year. A historically wide, about $18 per barrel, spread between light and heavy crude oil also aided refiners.

Many ran their plants at above 90% utilization rates, according to data from the U.S. Energy Information Administration and bought feedstock at lower costs, as U.S. crude futures dropped 5.7% over the prior quarter to $81.50 per barrel.

One reason diesel demand is strong: refiners are using diesel to reduce the amount of sulfur in fuel oil sold for ocean shipping. The price difference between high- and low-sulfur fuel oil is very wide, indicating more diesel is being used to make low sulfur fuel oil, said Andrew Lipow, president of consultants Lipow Oil Associates.

The high margins may not last this year, however. Releases from the U.S. Strategic Petroleum Reserve have ended, reducing supplies of sour crude oil in the market. Less Russian crude and OPEC exports could tighten heavy and light spreads, wiping away another refiner benefit.

‘The world should be worried’: Saudi Aramco — the world’s largest oil producer — issued a dire warning over 'extremely low' capacity.

World's largest oil supplier issues dire warning

World's largest oil supplier issues dire warning © KARIM SAHIB/AFP via Getty Images


The global oil market remains tight according to Saudi Aramco, the largest oil producer in the world. And that does not bode well for a world that still relies heavily on fossil fuels.

“Today there is spare capacity that is extremely low,” Saudi Aramco CEO Amin Nasser said at a recent conference in London. “If China opens up, [the] economy starts improving or the aviation industry starts asking for more jet fuel, you will erode this spare capacity.”

Nasser warns that oil prices could quickly spike — again.

“When you erode that spare capacity the world should be worried. There will be no space for any hiccup — any interruption, any unforeseen events anywhere around the world.”

Intel’s ‘Historic Collapse’ Erases $8 Billion From Market Value

Visitors are seen at the Intel booth during the China Digital Entertainment Expo and Conference, in Shanghai, China, on July 30, 2021. (Aly Song/Reuters)

Visitors are seen at the Intel booth during the China Digital Entertainment Expo and Conference, in Shanghai, China, on July 30, 2021. (Aly Song/Reuters)


Intel Corp. saw about $8 billion wiped off its market value on Friday after the U.S. chipmaker stumped Wall Street with dismal earnings projections, fanning fears around a slump in the personal-computer market.

The company predicted a surprise loss for the first quarter and its revenue forecast was $3 billion below estimates as it also struggled with slowing growth in the data center business.

Intel shares closed 6.4 percent lower, while rival Advanced Micro Devices and Nvidia ended the session up 0.3 percent and 2.8 percent, respectively. Intel supplier KLA Corp. settled 6.9 percent lower after its dismal forecast.

“No words can portray or explain the historic collapse of Intel,” said Rosenblatt Securities’ Hans Mosesmann, who was among the 21 analysts to cut their price targets on the stock.

The poor outlook underscored the challenges facing Chief Executive Pat Gelsinger as he tries to reestablish Intel’s dominance of the sector by expanding contract manufacturing and building new factories in the United States and Europe.

The company has been steadily losing market share to rivals like AMD, which has used contract chipmakers such as Taiwan-based TSMC to make chips that outpace Intel’s technology.

“AMD’s Genoa and Bergamo (data center) chips have a strong price-performance advantage compared to Intel’s Sapphire Rapids processors, which should drive further AMD share gains,” said Matt Wegner, analyst at YipitData.

Analysts said that puts Intel at a disadvantage even when the data center market bottoms out, expected in the second half of 2022, as the company would have lost even more share by then.

“It is now clear why Intel needs to cut so much cost as the company’s original plans prove to be fantasy,” brokerage Bernstein said.

“The magnitude of the deterioration is stunning, and brings potential concern to the company’s cash position over time.”

Intel, which plans to cut $3 billion in costs this year, generated $7.7 billion in cash from operations in the fourth quarter and paid dividends of $1.5 billion.

With capital expenditure estimated to be around $20 billion in 2023, analysts said the company should consider cutting its dividend.

Lithium’s historic rally fuels record profits for China’s miners



China’s big lithium miners are set to reap record earnings after booming demand for the electric vehicle battery material sent prices surging to an all-time high last year.

Tianqi Lithium Corp. forecasted preliminary net income for 2022 skyrocketed more than 10-fold, while rival Ganfeng Lithium Group Co. is predicting a surge of as much as 321%.

The bumper profits come as Chinese prices for lithium carbonate, a refined form of the material used in EV batteries, peaked in November after jumping around 15 times from lows in 2020. The global push toward an electrified transport fleet has fired up consumption but supplies have struggled to keep pace.

Lithium producers have unveiled a flurry of expansion plans to meet the battery boom, while takeover activity is also picking up in the sector. This month, Tianqi’s joint venture with IGO Ltd. said it will purchase Sydney-listed Essential Metals Ltd., while Ganfeng announced plans to spend 15 billion yuan ($2.22 billion) building two battery plants in China.

Battery manufacturers and automakers, meanwhile, have complained lithium has become too expensive over the past year, crimping margins. Lithium-ion battery costs rose for the first time last year in the EV era, according to BloombergNEF.

While prices have softened in recent weeks, there are still risks this year if miners from Chile to China and Australia hit hurdles in producing daunting volumes of new supply.

Tianqi Lithium is forecasting 2022 preliminary net income surged 1,011%-1,132% from a year earlier to a range of 23.1 billion yuan to 25.6 billion yuan. Ganfeng Lithium reported on Sunday its preliminary net income could climb 244%-321% to a range of 18 billion yuan to 22 billion yuan. The companies are yet to announce when they will report official results.

(By Annie Lee)

Monday, January 30, 2023

Why This 17-Year Old's Electric Motor Is Important

US blocks mining in parts of Minnesota, dealing blow to Antofagasta’s Twin Metals copper project

Antofagasta expects high copper prices for next 12 months, CEO says

Twin Metals copper-nickel mine and processing facility will be located along the shores of Birch Lake and the South Kawishiwi River, which lie in the Rainy River watershed. (Image courtesy of Twin Metals Minnesota)


The US Interior Department on Thursday blocked mining in part of northeast Minnesota for 20 years, the latest blow to Antofagasta Plc’s Twin Metals copper and nickel mining project but a step officials said is needed to protect the state’s vast network of interconnected waterways.

Interior Secretary Deb Haaland signed an order on Thursday withdrawing 225,504 acres in the Superior National Forest from leasing to mining or geothermal companies through 2043.

In 2019, Chilean miner Antofagasta (LON:ANTO), through its subsidiary Twin Metals, carried out a feasibility study for the project, an underground copper-nickel mine and processing facility along the shores of Birch Lake and the South Kawishiwi River, which lie in the Rainy River watershed.

A coalition of businesses, environmental advocates and outdoor recreation groups in the state of Minnesota went to court challenging a Trump administration’s decision that opened the door to a copper, nickel and platinum project by a wilderness area.

In August 2022, Antofagasta Plc’s Twin Metals subsidiary sued the US government in a bid to revive the proposed Minnesota copper and nickel mine, which Biden administration officials had blocked over concerns it could pollute a major recreational waterway.

Twin Metals asked the US District Court in Washington to restore the leases, which were first granted in 1966 and have been passed between successor companies. No mining has taken place at the site.

The underground mine would, if built, be a major US source of copper and nickel, two metals crucial for the green energy transition. The only existing US nickel mine is set to close by 2025.

(With files from Reuters)

Peru’s violent protests imperil 30% of its copper output


An upsurge in the violent protests wracking Peru is crimping copper output in the world’s No. 2 supplier, with about 30% of its production at risk at a time of low global stocks and high prices

One copper mine is offline after demonstrators stormed the site, another has seen shipments choked by roadblocks, while others have slowed operations as a precaution to manage scarce supplies of fuel and other inputs, according to industry group SNMPE.

“The situation of protests and the escalation of violence have affected the industry,” Magaly Bardales, who heads a mining sector committee at the association, said in a telephone interview. “We hope an understanding, a dialog with authorities, can be found to provide a swift solution.”

Demonstrators have blocked roads across Peru and clashed with security forces in more than six weeks of violent turmoil that began when President Pedro Castillo was impeached after he attempted to dissolve congress. Protesters are calling for both interim President Dina Boluarte and congress to be replaced, with more than 50 deaths and the violence showing no signs of easing.

The disruption coincides with operational setbacks and regulatory headwinds in neighboring Chile and the prospect of a mine shutdown in Panama as the government there seeks a bigger share of profit. Those supply threats have combined with optimism over Chinese demand after the lifting of covid restrictions to send copper futures to seven-month highs.

Related: Violent demonstrations roil Peru’s southern copper and tourism heartland

With global stockpiles of the wiring metal at historically low levels, traders are keeping close watch on events in Peru. The Andean nation accounts for about a 10th of global copper supply and is a major exporter of zinc and silver. About $160 million of production has been lost in 23 days of protests, Bardales said.

To be sure, protests are nothing new in Peru. It’s emergence as a major mineral producer has exacerbated historically tense relations with poor rural communities. The mining industry says not enough of the record-high revenue it generates for the state goes to improving local infrastructure and services.

But the current wave of unrest stands out from past events.

“I haven’t seen this level of violence, the coordinated nature of action, seeking to affect mining and energy, during the time I have been working in the sector,” Bardales said.

Much of the unrest is centered in the southern region of Puno, where Minsur SA’s San Rafael tin mine has been targeted. About 1,500 workers at San Rafael still can’t be evacuated, she said.

Tensions have fanned out into other areas of the south including Espinar, Arequipa and Cusco. Glencore Plc’s Antapaccay mine has halted operations after protesters entered and damaged a worker camp.

The Las Bambas complex is mining at a reduced rate due to blockade-related supply challenges, its Chinese-owned operator MMG Ltd. said, without elaborating. Bardales said Las Bambas is operating at just 20% of capacity, even as it continues to process ore on site.

The Cerro Verde mine in Arequipa isn’t being directly affected by protests but it has slowed mill operations by 10-15% in the past several days in a bid to conserve supplies such as lime amid a “very complicated” political situation, operator Freeport-McMoRan Inc. said this week on an earnings call.

Other mines to the north, such as BHP Group-Glencore’s Antamina are running normally, as are mines in the south that don’t depend on the so-called mining corridor for the transport of supplies, copper and people.

While the transport of semi-processed copper to ports has seen some disruption, the ports themselves are operating normally, Bardales said. She hadn’t heard of any “relevant” impacts on shipments.

The mining society continues to project an increase in Peruvian copper production this year as a new mine ramps up, although much depends on how long the current spate of protests lasts.

The unrest also jeopardizes the rollout of $53.7 billion in possible investments at a time when the world needs to accelerate decarbonization and boost minerals required for electromobility, according to BTG Pactual analyst Cesar Perez-Novoa.

“The combination of instability in other jurisdictions may exert upward pressure on copper prices,” Perez-Novoa said.

(By James Attwood)