Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Robert Hope recapped the earnings reports from the yield-heavy energy infrastructure sector and provided top picks,
“Overall, Q1 saw significantly higher volatility in results than usual with some sizable beats (TA, KEY, ALA) and misses (INE, NPI, RNW). This drove some large share price reactions with BEP, KEY, and ALA seeing sizable gains, while NPI, INE, and AQN saw weakness. Following the quarter, there was a slight bias higher in consensus estimates, with TA and KEY having the largest positive revisions for 2023. We continue to see the market focused on funding plans and leverage, and any positive news on these fronts could drive further outperformance.
“With continued natural gas and NGL [natural gas liquids] volume growth, our favourite sub-sector is the midstream group. The renewable group looks attractive to us on a valuation basis, but it is unclear what improves sentiment. Our overall favourite names are ALA, KEY, BLX, NPI, and TA.”
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Citi analyst Shreyas Madabushi reiterates the firm’s bullish call on lithium prices,
“Lithium prices in China have rallied to $28k/t (VAT adjusted) in the last two weeks after declining ~70% in the last 5 months to a low of $22k/t. We recommended clients buy lithium in our quarterly outlook report, 24 April on the back of an anticipated improvement in China’s EV market and the return of battery restocking in 2H’23 and we reiterate our bullish lithium view into year end, targeting ~35-40k/t (25-40% upside) … Lithium carbonate (Li2CO3) prices in China are no longer in freefall and appear to have bottomed out. Demand from downstream players remains tepid but buying interest has improved and restocking by the supply chain in 2H’23 should drive prices higher. Our 0-3mth pt price for carbonate is $32k/t (previously $20k/t)… Improved market sentiment, demand from physical traders, recovering EV sales, lower inventories in the supply chain and more attractive export arbitrage supported the rally. While downstream participants including cathode, cell and battery players are buying only on a hand-to-mouth basis, inventories have reached lower levels. It is a matter of time before the downstream producers start to restock”
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Bloomberg’s energy specialist Javier Blas argued that weak oil prices are caused by the black market,
“Purveyors of conventional wisdom would have you believe that the 25-per-cent drop in oil prices since late last year was due to softening demand in slowing economies. They — and you — would be wrong. The real problem is too much supply. Paradoxically, almost all the unanticipated production is coming from OPEC+ countries that are under Western sanctions: Russia, Iran and, to a lesser extent, Venezuela. Put simply, the black market for oil is booming. If one has the appetite – and the stomach – to buy crude from Moscow, Caracas or Tehran, the barrels are there. Better yet, they’re available at a discount. For instance, Iranian production hit a four-year high last month, up nearly 50 per cent from mid-2020, just as Tehran accelerates its nuclear program and intensifies a crackdown on domestic opposition. Much of that oil is ending up in China under different guises, often rebranded as originating in Malaysia, traders tell me.
“The Oil Market’s Real Weakness Is Supply, Not Demand” – Bloomberg
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Diversion: “Apple’s AI-Driven Accessibility Updates Include Text-to-Speech That Can Mimic Your Voice” – Gizmodo
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