Energy & Commodities

The skyrocketing cost of lumber, explained

 

Low supply and high demand have pushed lumber prices through the roof, but European beetles are helping.

Wood is typically used for building roofs. Now it’s known for blasting through them.

Lumber prices are up nearly 260% since April 2020, following a perfect storm of surging demand and diminished supply.

And it all started with a simple backlog…

At the start of the pandemic, sawmills anticipated weak demand and limited production by up to 30%. To their surprise, demand turned out stronger than ever:

  • DIY boom: While the US economy shrank 3.5% in 2020, spending on home improvements and repairs grew 3%+
  • Low interest rates: In December, US new housing starts hit a 14-year high

Despite wood production hitting a 13-year high in February, supply hasn’t caught up with demand — and now ~70% of builders are raising home prices to slow demand down.

The result is a $24k+ increase in the average price of single-family homes since April 2020.

European beetles are now coming in clutch

Not those European beetles. A literal beetle infestation across Europe is boosting logging there, and Europe’s share of US lumber imports reached a record high of 13% in 2020.

Those imports are critical to the US lumber supply as British Columbia has reduced production by over a third in 5 years.

In conclusion… (We wanted to end this piece with a joke about lumber, but we just couldn’t think of any that wood work.)

 

Schachter’s Eye on Energy – April 7th

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more

EIA Weekly Data: The EIA data on Wednesday April 7th was mixed. On the positive side US production fell last week by 200Kb/d to 10.9Mb/d (volumes should recover in the next week or so and then grow from there to 12.0Mb/d this summer) and Commercial Crude inventories fell by 3.5Mb (forecast of a decline of 1.6Mb). Of this decline Exports rose 260Kb/d lowering US supplies by 1.8Mb. On the bearish side Motor Gasoline inventories rose by 4.0Mb while Distillate volumes rose by 1.5Mb on the week. Refinery Utilization recovered 0.1 points to 84.0% from 83.9% and is above last year’s 75.6%.

The most bearish part of the report was consumption last week. Total Product consumed fell 1.1Mb/d to 19.2Mb/d. Gasoline demand fell 109Kb/d to 8.8Mb/d. Jet Fuel usage fell 99Kb/d to 1.3Mb/d. This fall off in consumption is likely due to the Easter holiday season and the end of spring break. Inventories at Cushing fell 0.8M to 46.3Mb and are down from 49.2Mb a year ago.

Baker Hughes Rig Data: The data for the week ended April 1st showed the US rig count rising by 13 rigs (rise of six rigs in the prior week). Canada had a decline of 12 rigs (11 rigs lower last week) as we are in the spring break-up season. Canadian activity is now above the lows of when the pandemic fear was at its highest. There are 69 rigs working in Canada now compared to 41 rigs working at this time last year. In the US there were 430 rigs active, but that is down 35% from 664 rigs working a year ago. The US oil rig count rose by 13 rigs. The Permian saw an increase of three rigs to 224 rigs working and activity is 36% below last year’s level of 351 rigs working. The rig count for oil in Canada fell by seven rigs to 24 rigs working but is up from the pandemic fear level of 9 rigs last year. The natural gas rig count fell by five rigs to 45 rigs active but is up 41% from last year’s level of 32 rigs working at this time last year.

Conclusion:

Crude oil prices have fallen over US$9/b in the last month from US$67.98/b to US$58.79/b now. Pressure on OPEC from China, India and the US helped to get them to agree to add material volumes versus the expectation of keeping production flat. Over the next three months OPEC will increase production by 2.0Mb/d, more than is needed for world wide demand growth into late 2021 and will help to drive crude prices lower. We headlined last week that we expected an imminent breach of US$60/b and this has happened. Our next downside target is US$57.63/b. A close below that level could set up a quick decline to the US$48-52/b level.

Bearish pressure on crude prices:

  1. OPEC (outside of the Saudis) will be adding 350Kb/d in May, 350Kb/d in June and 440Kb/d in July.
  2. The  Saudis will separately ease its cuts by 250Kb/d in May, 350Kb/d in June and 400Kb/d in July.
  3. Europe is seeing a severe third wave of Covid mutations and has gone into longer lockdowns. Germany, the engine of Europe, is extending its lockdown until April 18th and may extend it further if case-loads and deaths don’t decline. Cases doubled in Germany over the last month. Nearly a third of France just entered a month-long lockdown and they may face a full national lockdown shortly.
  4. The US and Canada are being hit by higher and faster spread of the mutations. Alberta is going back to tougher restrictions due to the pick up in caseload and mutation spread.
  5. Energy demand is showing signs of softening in various countries in Asia as tourism remains lackluster. The EIA has again lowered its demand forecast for 2021.
  6. Significant OPEC cheating is occuring (Iran, Iraq, Libya, Nigeria and Venezuela). China plans to buy 1.0Mb/d from Iran this month (January 2021 they imported 600Kb/d) as they get a nearly 10% price discount and very generous payment terms. China is not concerned about the US sanctions regime.
  7. US production has recovered by 1.2Mb/d so far. The Federal Reserve of Dallas sees the break-even price for crude in the Permian at US$50/b, providing lots of incentive to add barrels now. The rise in the US rig count supports the view that US production may be able to rise by another 1.0Mb/d this year.

With the big decline in the last few weeks, we see the technical support levels for WTI crude now at US$57.63/b on a close. Energy and energy service stocks are overbought and have been chased by hot momentum money adding to the inflation and economic recovery part of their portfolios.

We remain in the bear camp now. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for most companies for Q4/20 have been released and many were not strong enough to justify current lofty stock price levels. If crude prices retreat below US$50/b these stocks will get battered.

CONCLUSION:. The next few months could see significant downside for the energy sector. The topping process for the general stock market is ongoing and some ‘Black Swan’ event will prick this bubble. Rising interest rates appear to be one of the most likely reasons as the US 10-Year Treasury yield has increased to a new 2021 high of 1.74% more than triple the 0.52% of last August. 

Energy Stock Market: The S&P/TSX Energy Index now trades at 118 and is part of a lengthy, extended, and broadening topping process from the peak at 128 three weeks ago. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 111.59 should initiate the next sharp decline. Our target, once 100 is busted, is down to the 60-70 area with WTI trading in the US$42-48/b area. In this range we will be looking for a bottom and the next low risk BUY signal.

We are setting up models on five pipeline and infrastructure stocks and will launch coverage of these new ideas in our April SER Monthly to be distributed on Thursday April 22nd. Our research presentation for all of our covered companies is now falling under three designations: Conservative, Growth and Entrepreneurial. Investors interested in this new coverage should become subscribers to get access to our expanded research coverage.

Our April Interim Report will be out on Thursday April 8th and will include updates on 13 of our Coverage List companies. This should make for interesting reading for subscribers so they can focus on favourite ideas to BUY when we get the next low risk BUY signal.

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY or SELL signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. Our coverage in the April SER Monthly will rise to 32 companies. We go over the markets in much more detail and highlight individual companies’ financial results in our reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  https://bit.ly/34iKcRt  to subscribe.

 

Taiwan Semiconductor Manufacturing Co plans to spend US$100 billion over the next three years to expand its chip fabrication capacity, a staggering financial commitment to address booming demand for new technologies.

TSMC, the world’s leading manufacturer of advanced semiconductors, already planned a record capital expenditure of as much as US$28 billion this year, but recent trends and developments have pushed for even more capacity. Now at the centre of a global chip supply crunch, Taiwan’s biggest company has pledged to work with customers across industries to overcome a deluge of demand.

“TSMC expects to invest US$100 billion over the next three years to increase capacity to support the manufacturing and [research and development] of advanced semiconductor technologies,” the company said in a statement responding to local media reports. “TSMC is working closely with our customers to address their needs in a sustainable manner.”

TSMC suppliers surged on the news, buoyed in part also by Micron Technology Inc’s bullish forecast. Screen Holdings Co climbed 6 per cent, Tokyo Electron Ltd rose 4.7 per cent and ASM International NV jumped as much as 5.4 per cent while ASML Holding NV was as much as 3.2 per cent higher on Thursday. TSMC’s own share price was up 2.6 per cent on the day.

Read More

Schachter’s Eye on Energy – March 31st

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more

EIA Weekly Data: The EIA data on Wednesday March 31 was mixed. US lower 48 production rose by 200Kb/d to 10.7Mb/d and Total Domestic Production rose by 100Kb/d to 11.1Mb/d.  Commercial Crude inventories fell by 0.9Mb, just above the consensus and was due to exports rising 693Kb/d or by 4.9Mb last week. Net Imports fell 170Kb/d or 1.2Mb on the week so we would have had a build this week if not for this stock movement. Motor Gasoline inventories fell by 1.7Mb due to stronger demand while Distillate volumes rose by 2.5Mb on the week as the weather improved. In the coming weeks US production should continue to rise as drilling activity is robust and could recover another 0.9Mb/d to reach 12.0Mb/d before the end  of the summer. Private operators are driving the growth in production as large public companies are under pressure to pay down debt and provide shareholder returns. Refinery Utilization recovered 2.3 points to 83.9% from 81.6% and is now above last year’s 82.3%. It appears the Texas Polar Vortex weather event is now behind us. Overall Commercial Crude inventories are 32.6Mb above last year or up by 7.0% to 501.8Mb.

As we are now one year into the pandemic and its initial impact, we are seeing recovery in the consumption levels of the various products, compared to the full Covid-19 shut down level of last year. Spring break holidaying is helping the numbers. Total Product consumed rose 1.61Mb/d to 20.3Mb/d but remains 4.9% below a year ago on a four week basis. Gasoline demand rose 275Kb/d to 8.89Mb/d. Jet Fuel consumption rose 324Kb/d to 1.36Mb/d and is now slightly above the decimated level of 1.34Mb/d of a year ago. Inventories at Cushing rose 0.8M to 47.1Mb and are up from 42.8Mb a year ago.

Baker Hughes Rig Data: The data for the week ended March 26th showed the US rig count rise of six rigs (nine rig decline in the prior week). Canada had a decline of 11 rigs (24 rigs lower last week) as we are in the spring break-up season. Canadian activity is now above the lows of when the pandemic fear was at its highest. There are 81 rigs working in Canada now compared to 54 rigs working at this time last year. In the US there were 417 rigs active, but that is down 43% from 728 rigs working a year ago. The US oil rig count rose by six rigs. The Permian saw an increase of five rigs to 221 rigs working and activity is 42% below last year’s level of 382 rigs working. The rig count for oil in Canada fell by 10 rigs to 31 rigs working but is up from the pandemic fear level of 18 rigs. The natural gas rig count fell by one rig to 50 rigs active but is up 39% from last year’s level of 36 rigs working at this time last year.

Conclusion:

Crude oil prices have fallen US$8/b in less than four weeks from US$67.98/b after the Saudi announcement of extending their official 1.0Mb/d production cut. Today’s low so far is US$59.96/b. The price now is US$60.78/b.

Bearish pressure on crude prices:

  1. The Suez canal has re-opened and the transit risk has now fallen off.
  2. Europe is seeing a third wave of Covid mutations and has gone into longer lockdowns. Germany, the engine of Europe, is extending its lockdown until April 18th and may extend it further if case-loads and deaths don’t decline. Cases doubled in Germany over the last month. Nearly a third of France just entered a month-long lockdown and they may face a full national lockdown shortly.
  3. The CDC Director made an emotional plea Monday for continued masking and social distancing even though vaccination rates are now at 3M people per day. Her concern relates to the higher and faster spread of the mutations and an increase in 31 US States of hospitalizations and use of ICU beds. The death rate has risen to  550K in the US and 2.8M worldwide.
  4. Canada is worrying about a third wave looming over the country as there has been a lack of active testing, and active variant cases are up 50% since early March in British Columbia, Alberta, Saskatchewan, Ontario and Quebec. Vaccination rates are much slower than the US due to slow receipt of product. The new case-load increase is occurring in people in their 40’s and 50’s.
  5. Energy demand is showing signs of softening in various countries in Asia as tourism remains lackluster.
  6. Significant OPEC cheating is occuring (Iran, Iraq, Libya, Nigeria and Venezuela)
  7. US production has recovered by 1.4Mb/d so far. The IEA in their recent monthly report noted “global oil inventories and supply remain plentiful”. The Federal Reserve of Dallas sees the break-even price for crude in the State at US$50/b, providing lots of incentive to add barrels now.
  8. A stronger US dollar has a negative impact on commodity prices. The US dollar has risen recently to 93.32.

Bullish support for crude prices:

  1. OPEC is planning a meeting tomorrow (April 1st) to discuss production levels for May and it appears that the Saudi line is to continue current levels into the end of June with only moderate increases for Russia and Kazakhstan. They will put pressure on the many cheaters.
  2. Seaborne crude may take longer to reach consuming nations that have low inventories. Most large consuming nations have strategic reserves so overall not a big impact.
  3. Speculative hedge funds have lowered their long positions by 73Mb to a net short level of 824Mb.
  4. Refineries will be building inventories to produce products for the summer driving season.
  5. Vaccination rates are rising around the world providing a desire to get back to normal this summer. All who want vaccines in the US should have them by the July 4th holiday.

With the big decline in the last few weeks, we see the technical support levels for WTI crude now at US$57.75 on a close (not much below where we are now). Energy and energy service stocks were overbought and had been chased by hot momentum money and quarterly window dressing as we near the end of Q1/21. We remain in the bear camp now. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for most companies for Q4/20 have been released and many were not strong enough to justify current lofty stock price levels. If crude prices retreat below US$50/b these stocks will get battered.

CONCLUSION:. The next two months could see significant downside for the energy sector. The topping process for the general stock market is ongoing and some event will prick this bubble. Rising interest rates appear to be the most likely reason as the US 10-Year Treasury yield has increased to a new 2021 high of 1.76% more than triple the 0.52% of last August. 

Three weeks ago we got a second 100% Bullishness signal from the S&P Energy Bullish Percent Index which is the first time in my career that we have seen back to back clear SELL signals in any one year. The danger is clear and the downside is significant. We are now at 65.2% bullishness so there is quite a distance downward before the next BUY signal could occur and we will notify subscribers immediately.

Energy Stock Market: The S&P/TSX Energy Index now trades at 117 and is part of a lengthy, extended, and broadening topping process from the peak at 128 three weeks ago. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 111.59 (the low close last week) should initiate the next sharp decline. Our target, once 100 is busted, is down to the 60-70 area with WTI trading in the US$42-48/b area. In this range we will be looking for a bottom and the next low risk BUY signal.

We are setting up models on five pipeline and infrastructure stocks and will launch coverage of these new ideas in our April SER Monthly to be distributed on Thursday April 22nd. Our research presentation is moving for all of our covered companies falling under three designations: Conservative, Growth and Entrepreneurial. Investors interested in this new coverage should become subscribers to get access to our expanded research coverage.

Our April Interim Report will be out next week Thursday April 8th and will include updates on 13 of our Coverage List companies. This should make for interesting reading for subscribers so they can focus on favourite ideas to BUY when we get the next low risk BUY signal (potentially late April or during May).

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY or SELL signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. Our coverage in the April SER Monthly will rise to 32 companies. We go over the markets in much more detail and highlight individual companies’ financial results in our reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  https://bit.ly/34iKcRt to subscribe

Intel to Spend $20 Billion on Two New US Chip Plants

 

The announcement comes as U.S. automakers struggle to source semiconductors for vehicle production.

Intel Corp. is making major plays in the field of semiconductor manufacturing. The Santa Clara, California-based technology and electronics company announced it would spent $20 billion on two new semiconductor factories in Chandler, Arizona. The plants are expected to employ 3,000 people in high-tech manufacturing jobs.

In addition, Intel will form a standalone semiconductor manufacturing business, Intel Foundry Services, in order to serve growing global demand for computer chips, with plans for more semiconductor factories elsewhere in the U.S. and Europe.

The new standalone business will help Intel challenge rival chip manufacturers around the world like Samsung Semiconductors of South Korea and TSMC of Taiwan, which currently produce many of the computer chips used in electronic products from cell phones and laptops to electric vehicles and refrigerators.

Read More

 

Schachter’s Eye on Energy – March 24th

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more

EIA Weekly Data: The EIA data on Wednesday March 24th was overall bearish for prices as both crude inventories rose for a fourth week and US production rose by 100Kb/d to 11.0Mb/d. Commercial Crude inventories rose by 1.9Mb compared to a forecast of a 300Kb/d decline as net crude imports rose by 299Kb/d or by 2.1Mb on the week. In the coming weeks US production should continue to rise as drilling activity is robust and could recover another 1.0Mb/d to reach 12.0Mb/d. Private operators are driving the growth in production at the current time as large public companies are under pressure to pay down debt and provide shareholder returns. Gasoline inventories rose a moderate 200Kb and Distillates rose by 3.8Mb as refinery activity recovered.

Refinery Utilization recovered 5.5 points to 81.6% from 76.1% but remains below last year’s 87.3%. Overall Commercial Crude inventories are 47.4Mb above last year or up by 10.4% to 502.7Mb. Just in the last four weeks crude inventories have risen 39.7Mb. This is the build problem we have been warning about. Inventories should continue to rise until we start the summer driving season. This could add 40-60Mb of additional stocks in storage. Total Product consumed fell 231Kb/d to 18.73Mb/d.  Gasoline demand rose a modest 174Kb/d to 8.62Mb/d. Jet Fuel consumption rose by a modest 27Kb/d to 1.04Mb/d as the spring break travel season is underway. Inventories at Cushing fell 1.9M to 46.3Mb and are up from 39.3Mb a year ago.

Baker Hughes Rig Data: The data for the week ended March 19th showed the US rig count rise of nine rigs (one rig decline in the prior week). Canada had a decline of 24 rigs (25 rigs lower last week) as we are in the spring break-up season. Canadian activity is 6% below last year when 98 rigs were working. In the US there were 411 rigs active, but that is down 47% from 772 rigs working a year ago. The US oil rig count rose by nine rigs. The Permian saw an increase of four rigs to 216 rigs working and activity is 47% below last year’s level of 405 rigs working. The Eagle Ford saw an increase of three rigs to 32 rigs but remains 52% below last year’s rig level of 67 rigs working. The rig count for oil in Canada fell by 17 rigs to 41 rigs working and is down 21% from 52 rigs working last year. The natural gas rig count fell by seven rigs to 51 rigs active but is up 11% or five rigs from last year’s level of 46 rigs working at this time last year.

We are now one year past the start of the pandemic shutdown of the economies world wide. From current levels economic data will be watched closely to see how quickly we are recovering.

Conclusion:

Crude oil prices have fallen nearly US$10/b from the high less than three weeks ago of US$67.98/b after the Saudi announcement of extending their official 1.0Mb/d production cut through April, to this morning’s low of US$57.49/b. The large plunge has many reasons which we have been covering for some time:

  1. First, Europe is seeing more cases (a third wave) of the mutant pandemic versions and has gone into longer lockdowns. Germany the engine of Europe is extending its lockdown until April 18th (with a strict lock-down during Easter) and may extend it if case-loads and deaths don’t decline. Cases doubled in Germany over the last month. Nearly a third of France just entered a month-long lockdown.
  2. Demand is showing signs of softening in various countries in Asia.
  3. Significant OPEC cheating is occuring (Iran, Iraq, Libya, Nigeria and Venezuela)
  4. US production has recovered by 1.3Mb/d so far from the Texas winter blast and may be able to add 1.0Mb/d more in the coming months. US inventories have risen by 39.7Mb in the last four weeks busting the notion of inventories declining which has been the bulls’ thesis mantra. The IEA in their recent monthly report noted “global oil inventories and supply remain plentiful”.
  5. A stronger US dollar has a negative impact on commodity prices. The US dollar has risen recently to 92.35.
  6. Speculative crude oil futures buyers have been hurt as the price fell sharply and margin calls added to the large plunge of US$4/b yesterday.

With the significant plunge in crude prices, reflex rallies are likely. Today we are seeing such a bounce as a giant China Evergreen operated container ship is blocking the Suez canal. It became wedged in length ways across the waterway causing over 100 vessels including oil tankers to be delayed in transit. Tugs boats are working to refloat the vessel and are likely to do so in the near future. This short term issue bumped WTI up from US$57.49/b to US$60.44 currently. This bounce should end shortly and the downtrend recommencing.

With the big decline in the last few weeks we see the technical support levels for WTI crude now at US$57.75 on a close (not much below where we are now). Energy and energy service stocks were overbought and had been chased by hot momentum money and quarterly window dressing as we near the end of Q1/21. We remain in the bear camp now. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for many companies for Q4/20 have been released and were not strong enough to justify current lofty stock price levels. If crude prices retreat below US$50/b these stocks will get battered.

We had a 100% SELL signal on January 14, 2021. Subscribers of our regular SER service were notified of this on January 14, 2021 and were informed of 14 stocks and the prices at which we think should be harvested. We sent out a second SELL Alert on February 5th and added four additional ideas for harvesting. The next two months could see significant downside for the energy sector. The topping process for the general stock market is ongoing and some  event will prick this bubble. Rising interest rates appear to be the most likely reason as the US 10-Year Treasury yield has increased to a new 2021 high of 1.74% more than triple the 0.52% of last August. 

Two weeks ago we got a second 100% Bullishness signal which is the first time in my career that we have seen back to back clear SELL signals in any one year. The danger is clear and the downside is significant. Just look at the horrible downside moves seen in yesterday’s trading. 

Energy Stock Market: The S&P/TSX Energy Index now trades at 117 and is part of a lengthy, extended, and broadening topping process from the peak at 128. The S&P/TSX Energy Index is likely to fall substantially in the coming months. A breach of 111.59 (yesterday’s low) should initiate the next sharp decline. Our target, once 100 is busted is down to the 60-70 area with WTI trading in the US$42-48/b area. In this range we will be looking for a bottom and the next low risk BUY signal.

We are in the process of setting up models on five pipeline and infrastructure stocks and will launch coverage of these new ideas in our April SER Monthly to be distributed on Thursday April 22nd. Our research presentation will then move to all of our companies falling under three designations: Conservative, Growth and Entrepreneurial. Investors interested in this new coverage should become subscribers to get access to our expanded research coverage.

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY or SELL signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies’ financial results in our reports. If you are interested in the energy industry this should be of interest to you.

To get access to our research go to  https://bit.ly/34iKcRt to subscribe.