Natural Gas Seeks Direction: Market Bits

NEW YORK ( TheStreet) -- Natural gas got caught up in the commodity markets' decline Tuesday with spring warming up many areas of the United States, but the sector also saw plenty of deal activity.

Natural gas for May delivery fell 0.6% to $4.083 per million British thermal units. forecasts high temperatures ranging from the 40s in western Pennsylvania to the middle and upper 70s in southeast Virginia Tuesday, heat ranging from the 60s and lower 70s in the interior Southeast to the upper 80s and lower 90s in southern Florida and the Rio Grande Valley of Texas, temperatures ranging from the 40s and 50s in the upper Ohio Valley to the upper 70s and lower 80s in western Kansas, and high temperatures ranging from the upper 40s and 50s in Montana, Wyoming and northern Utah to the middle 80s to near 90 in southern Arizona and New Mexico and southeast California.

Natural gas M&A was energized. An affiliate of private equity leader Blackstone Group LP, ( BX), Blackstone Capital Partners, and oil and natural gas explorer Alta Resources, announced Tuesday that they've formed a partnership called Alta Energy Partners, which will invest $1 billion to buy and develop shale oil and gas assets in North America.

Also natural gas company SM Energy ( SM) on Monday said it entered a long-term service agreement with ETC Texas Pipeline, a subsidiary of natural gas limited partnership Energy Transfer Partners ( ETP), where ETC will provide the former with about 190 MMcf (million cubic feet) of natural gas output a day over a ten-year period starting in 2013; and construct a pipeline and related facilities, as well as a new processing plant for SM Energy's Eagle Ford assets in South Texas.

In addition, reports surfaced that energy giants BP ( BP) and Statoil ( STO), together with their Algerian state energy firm partner Sonatrach,, have inked a $1.2 billion deal with oil and gas construction group Petrofac to develop the second phase of the In Salah natural gas field in the southern Sahara.

Treasury bonds were spiking Tuesday as investors sought safety after Japan raised its nuclear crisis severity levels to the equivalent of the levels during the 1986 Chernobyl disaster.

The two-year note was rising 4/32, lowering the yield to 0.766%; the ten-year note was adding 24/32, pushing down the yield to 3.498%; and the 30-year bond was jumping 1 11/32, lower the yield to 4.574%.

This week, the government is selling $66 billion in Treasury notes. On Tuesday, $32 billion in new, three-year notes were being sold. On Wednesday and Thursday, $21 billion and $13 billion in ten-year and 30-year reopenings were being sold. In a security reopening, the U.S. Treasury issues additional amounts of a previously issued security.

iShares Barclays TIPS (Treasury inflation-protected securities) Bond Fund (ETF) ( TIP) was 0.4% higher to $109.28.

The U.S. dollar index was falling 0.2% to $74.93, down against other major currencies, as investors flocked to safety and dovish Fed comments reverberated through the markets.

"NY Fed President William Dudley held a cautious look for the world's largest economy as he expects unemployment to come down 'slowly,' and the dovish rhetoric held by the FOMC may continue to bear down on the greenback as the central bank continues to carry out the additional $600 billion in quantitative easing," said Daily FX analyst David Song.

One main beneficiary of Tuesday's flight from the U.S. dollar was the Swiss Franc, which was rising 1.1% to $1.11477. CurrencyShares Swiss Franc Trust ( FXF) was rising 1.1% to $110.47.

(Published at 11:59 a.m. ET)

Copper futures were trading in the red Tuesday after a Goldman Sachs report warned about a top in the commodities market and the continued impact of Japan's earthquake. raising of nuclear crisis severity levels to that comparable of ones from the 1986 Chernobyl disaster.

Copper for May delivery was falling 2.1% to $4.37 a pound as risk aversion gripped the markets.

"Copper and platinum will face near-term headwinds as higher oil prices potentially translate into a negative demand shock for the metals and as these commodities are exposed to supply chain problems resulting from the earthquakes in Japan," Goldman Sachs analyst Jeffrey Currie noted in a report.

The analyst said copper remains vulnerable to slowing demand as high prices and tight credit translate into tight inventory management from China -- a key copper consumer.

Goldman Sachs is closing its long copper and platinum trades, but is open to establishing new long positions when an appropriate entry point opens. The supply-side story for these metals remain intact, says Currie.

Chinese commodity trade data indicates that copper scrap rose 8% year-over- year to 390 kilotons in March, but copper imports fell 33% to 304 kilotons. "Scrap imports have exceeded or nearly matched copper imports since last June in response to the accelerated rise in world copper prices," an ANZ Commodity Research report noted.

Copper producer Freeport-McMoRan ( FCX) was falling 4.3% to $53.06, and peer Southern Copper ( SCCO) was losing 3% to $37.60. Mining equipment maker Caterpillar ( CAT) was tumbling 2.4% to $106.46 and competitor Bucyrus International ( BUCY) was flat at $91.42.

Soybean and cotton futures were also tumbling after the Goldman Sachs report was published.

May soybean futures dipped 2.9% to $13.28 1/4 a bushel and May cotton lost 3% at $1.98 a pound.

It wasn't just copper and platinum that Goldman recommended closing out of -- the commodities team recommended closing out of the entire "CCCP" basket trade, consisting of the former two and crude oil, cotton and soybeans.

"Although we believe that on a 12-month horizon the CCCP basket still has upside potential, in the near term risk-reward no longer favors being long the basket and we are recommending closing the position for a 25% return versus a 28% target. While crude oil, cotton and copper prices have substantially exceeded our targets, platinum and soybean prices have lagged," the Goldman Sachs report said.

Chinese commodity trade data shows that soybean imports fell 13% year-over-year to 3.5 million tons in March, but rose 51% month-over-month from the February low. ANZ Commodity Research wrote that the drop was attributable to a price freeze on soy oil retail prices from December to March, placing crushing mills at a disadvantage as margins diminished and soybean wholesale prices rose.

The ANZ report said the government supplied subsidies of 335 kilotons of soybeans and 450 kilotons of canola oil to four major crushing mills at a discount of 13% to 14%, but they accounted for less than one month of mill demand. "Due to the squeeze in margins, mills ran down their stocks and held off from placing new orders for soybean imports. Industry sources suggested that the price freeze would be extended with a second round of supply of subsidized soybeans and canola oil."

Fertilizer producer Intrepid Potash ( IPI) was down 0.3% to $33.89, farm equipment maker Deere ( DE) was dipping 1.8% to $93.29 and oilseeds transporter Archer Daniels Midland ( ADM) was down 0.5% to $35.39.

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-- Written by Andrea Tse in New York.

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