Daily Brief Energy/Materials: Crude Oil, China Mineral Resources Group, Adaro Energy and more

• WTI 105 short zone working again for a low near the 89/85 zone to set up a better buy level. Oil still struggling with supply/demand constraints.
• 105 has been our firm sell zone. Gap lower will cut the legs out from under the XLE bounce.
• We expect USD strength to resume and will put additional pressure on oil. Choppy overlapping decline warns of an upcoming WTI low as the descending pattern matures.

• China’s central government formally launched a state-owned iron ore giant to consolidate China’s massive mining investments and coordinate global purchases of steelmaking materials for the world’s largest steel producing nation
• With registered capital of 20 billion yuan ($3 billion), China Mineral Resources Group was established Tuesday in the Xiongan New Area
• Creation of the enterprise is seen as part of China’s long-pursued goal of enhancing its position in the global iron ore trade

We view Adaro as “Low Risk” on the LARA scale, due to: [1] the company’s large scale (being the second-largest coal miner in Indonesia) and low-cost position ( However, Adaro’s coal product mix has a low calorific value of 5,000 CV/kg, hence it commands lower prices (30-45% below the benchmark). Customers are primarily (c. 90%) power plants in the region which exhibit stable demand patterns. The company’s coal, Environcoal, is environmentally friendly (low ash, sulfur and nitrogen content). The main risk factors are significant operational and regulatory risks due to Adaro’s primary reliance on a single-site coal mine. 

Our Credit Bias is “Positive”, given the improving fundamentals amid a highly favourable operating environment.

Controversies are “Immaterial”, with Adaro only facing one tax issue. That said, the tax issue is a non-concern for investors. The ESG Impact on Credit is “Neutral”.