News archive August 2002

Japanese gross domestic product was up 0.5% in the three 2q 02. This slight growth signalled the end of four successive quarters of recession. But economists state that the recovery (on a year on year basis was down 0.8%) is weak and is dependent on increases in exports.

The reliance on exports is shown by an increase of 5.8% quarterly and 3.8% from last years figure. For the growth of the economy to continue the domestic market needs to pick up, private consumption has risen 0.3% quarterly but is still down 0.7% from 2q 01.

Dated Brent was trading at $27.3/b mid afternoon Friday.

There is increasing speculation in the oil press that OPEC might raise production at its next meeting in September. According to sources at the group a rise could be as much as 0.5 mb/d. The potential rise in supply put a downward pressure on prices today with Dated Brent trading lower at $26.91/barrel by late afternoon in London.

Severe droughts in North America and Australia coupled with poor harvests elsewhere have resulted in a sharp rise in grain prices. World wheat consumption is expected to exceed production by 25m tonnes this year leaving exporters stocks the lowest since the mid-1990's. The combined exports of the five major wheat exporters are expected to be the lowest for 30 years.

The outlook for course grain is more favourable, the latest IGC forecast for world wheat and course grain levels in 2002/03 of 1,481 Mt compares with an estimated 1,474 Mt in 2001/02.

Demand for capital goods rises

The US economy continues to send mixed signals. Orders for capital goods, which provide a reasonable indication of levels of business investment throughout the economy, increased by 13.5% in July. This was the largest rise since 1992 and the third increase in four months, strongly suggesting that a two-year slump in capital spending could be coming to an end.

This positive news was, however, counter balanced by another drop in consumer confidence, which fell to a 9 month low in August.

Dated Brent was trading late afternoon in London at $27.10/bbl.

The US economy continues to send mixed signals. Orders for capital goods, which provide a reasonable indication of levels of business investment throughout the economy, increased by 13.5% in July. This was the largest rise since 1992 and the third increase in four months, strongly suggesting that a two-year slump in capital spending could be coming to an end.

This positive news was, however, counter balanced by another drop in consumer confidence, which fell to a 9 month low in August.

With the recent sale for breaking of a further VLCC - the first since May - the first eight months of 2002 have seen 27 VL/ULCCs sold for scrap, This represents a considerable increase on last year's figures, when 15 such ships were sold in the corresponding period. The yearly total for VL/ULCC demolition in 2001 was 30 ships, and already at the end of August that figure has almost been reached. Although no guarantee exists that there will be any repetition of the massive surge in VL/ULCC scrap selling seen in the last four months of 2001, present indications are that total sales for breaking in this size group will reach their highest annual total since 1999.

Dated Brent was trading at $27.80/barrel in London late afternoon.

Despite the generally weak tone to the coal market over recent months, some bright spots for import growth remain. For example, coal imports by Taiwan reached 25.3MT in 1h-02, up 7.6% compared to the same period last year. Imports increased 23.7% from Australia but fell by 39.4% from South Africa. The fall in South Africa's market share was also made up by increases from Russia (92.4%) and Canada (30.7%).

In contrast to Taiwan, Hong Kong's year on year coal imports fell by 6.3% in 1h-02 to 4.07MT. The main supplier to lose out was Australia, whose imports to Hong Kong were cut by half. Indonesia, Hong Kong's major supply source, saw a drop of 14%, whereas imports from China and Russia both increased.

There was some further positive demand news this week in the Oil & Gas Journal Report. For the 9th consecutive week, the Journal reported that US demand for oil and oil products stood 2% above last year's figures. For most of 2002 to date, demand had been lagging last year's levels. The most significant increase is in motor gasoline, which was 7.6% up from last year's numbers. However to the detriment of the tanker market, crude imports remain lower - 1% down on last year, reflecting higher US production of crude and NGLs.

There is some positive pressure on the tanker market from the refined oils sector though. The Journal reported that product imports were 6.1% higher than last year - largely due to higher gasoline demand. This reflects poor US refining margins particularly as jet fuel demand has fallen.

The US has excluded a further 178 steel products from its protective tariffs (of up to 30%) that were imposed in March. The products excluded were labelled as difficult or impossible to obtain from US producers.

Asia and the EU were worst hit by the introduction of the tariffs in March but the exemptions announced yesterday accounted for 25% of Japan's exports the US in 2001. The lifting of the selected US steel tariffs has resulted in Japan's threat of retaliatory tariffs being removed, while the EU are await a decision by the World Trade Organisation on US protectionism before placing their own.

Newspaper reports today suggested that the American Petroleum Institute (API) has suffered a glitch in its data reports for the week ending 14th August. At this time, the API reported US crude stocks had fallen by 9.5 mb and then reported an increase in stocks of 6.6 mb the following week. Analysts have now called this figure into doubt.

Recent figures released by the Energy Information Administration (EIA) suggest a much smaller fall. The implication of the so called "glitch", calls into question the degree of oil demand recovery in the US so far this year.

Dated Brent was trading today at $27.22 in the late afternoon.

Newspaper reports today suggested that the American Petroleum Institute (API) has suffered a glitch in its data reports for the week ending 14th August. At this time, the API reported US crude stocks had fallen by 9.5 mb and then reported an increase in stocks of 6.6 mb the following week. Analysts have now called this figure into doubt.

Recent figures released by the Energy Information Administration (EIA) suggest a much smaller fall. The implication of the so called "glitch", calls into question the degree of oil demand recovery in the US so far this year.

Dated Brent was trading today at $27.22 in the late afternoon.

Imports into China have reached 81% of the overall tariff quota for steel products according to official Chinese customs data. This indicates that with only 19% of the tariff quota to go the introduction of tariffs on all imported steel products will soon be in place, if fact for most products, these will enter force before the end of August.

Japan is asking Chinese businesses to deposit bonds for the special tariffs before supplies from Japan can be discussed. The soon to be imposed tariffs will adversely affect Chinese manufacturers who depend on imported product. The businesses that will be affected are lobbying the government for exemption from tariffs, the issue will be addressed at a public meeting in early September.

Annual world oilseed production is now forecast by the US Department of Agriculture to fall by 3.5 million tons to a figure of 319.9 million tons in the 2002/2003 crop year. The revised forecast is 8.6 million tons lower than USDA's predictions of a month ago. If total production does fall, it will be the first time in 7 years, the reduction being mainly due to a smaller US crop.
Despite the forecast fall in production, trade in oilseed cargoes looks set to increase 4% from last year's figures.

NYMEX crude oil neared $30/bbl yesterday raising concerns that it may slow recovery in the global economy. The high prices yesterday and today can be attributed in part to speculation that OPEC will maintain its present production ceilings for three months when it meets on 19th September. The Organisation's ten members (excluding Iraq) are reputedly split over the issue but reports from a senior OPEC source say the group is optimistic that an agreement can be reached by the date of the meeting. An official from the International Energy Agency said today that rising crude and product prices would "tend to put a drag on economic recovery".

Meanwhile the US has stated that in the absence of any emergency, it will not release supplies from the strategic oil reserve despite rising oil prices.

By late afternoon in London Dated Brent was trading at $27.18/barrel.

World steel production continued increasing to further record levels in July showing growth of 8.3% from the same month last year. World production for the first seven months of the year has increased 4.6% from 2001.
As usual Asian production has continued to fuel world growth. China increased monthly production by 26.5% from last year and Japans output grew 3.5%. Brazil continues to grow at a fast pace with production up 32.6% from July 2001. The US turned production around to growth of 2.3% year on year.

Continuing tensions in the Middle East coupled with speculation that OPEC will not increase production following its meeting in September, have forced oil prices up again. Brent oil price is currently holding strongly up around the $27 per barrel mark.

The news that Russia crude and product exports are rising and that it is set to increase exports 32% from its 2001 figures over the next three years has not had any effect on the rocketing prices. According to the Energy Intelligence Group, this year Russia hopes to reach an export level of 3.5 million b/d and has upped its average daily production to 7.38 million b/d an increase of 0.38 million b/d from 2001.

In the first half of the year coal throughput at the Port of Rotterdam has fallen by 17% from 2001 figures. The decrease in throughput is being attributed to the lack of demand from Dutch power stations due to technical reasons and a mild winter.

Throughput at the port was extremely high in the first half of 2001 but dropped off for the second half of the year. According to the port management the trend is expected to be reversed this year with imports picking up in the latter half of the year with the overall annual figure approaching the record levels of 2001.

After rising on the back of lower American crude oil stocks earlier this week, oil prices rose further on Thursday and Friday as the US warned that Iraq was undertaking strategic measures that point towards war preparation. Renewed civil unrest in Venezuela also put some upward pressure on prices. If the problems being faced by Iraq and Venezuela escalate, it could cause a surge in oil prices and bar some strategic stock building, could further undermine the current weak demand levels. The delicate situation in both countries also threatens oil supplies and has added to the upward pressure on prices. Dated

Brent was trading today at $26.85, by late afternoon Friday.

The comparisons of China's monthly iron ore import figures with the previous year show a rise in imports in all months bar May. Total ore imports were at a level of 51 million tonnes for 1H-02 a substantial increase (9 million tonnes) from the 1H-01. Australia remained China's major supplier and was responsible for 18 million tonnes (35%) of the total figure. Brazil and India also supplied over 10 million tonnes each with both countries responsible for over 20% of total imports. If continued this positive growth will lead to record annual figures of iron ore imports for 2002 as a whole.

Spot coal prices look set to rise in response to heavy European winter buying and rising US imports according to DRI-Wefa. Australian coal is predicted to rise from its present rate of US$22/mt to $24.30/mt by January next year, a $2 rise is forecast to occur in the South African market with prices reaching $24 in January.

The low prices in the Atlantic and Pacific market have led to European buyers stocking up for winter. While no major recovery is imminent the remained interest may stabilise the market in the third quarter of the year.

Crude oil stocks in the US have fallen to a 1-1/2 year low, prompting a rise in oil prices. In the week ending Friday 9th August US oil inventories were down 3.1% on the previous week's figures. This was the fifth time in six weeks that oil inventories have declined. Gasoline stocks are also down as the demand for gasoline has soared. The rise in demand for gasoline is somewhat offsetting low jet fuel demand that failed to recover to pre September 11th levels. Given the fragile situation in the Middle East and uncertainty over supplies in the event of US military action in Iraq US oil companies are likely to increase crude imports over the coming weeks to replenish their stocks. This could put some upward pressure on crude tanker rates.

Dated Brent was trading at $25.99/barrel by late afternoon, Wednesday.

Global investors registered their fears over the US economy with widespread falls in the main global indices after Fed boss Alan Greenspan announced that interest rates would remain unchanged at 1.75%. Rates remain at a 40 year low. The Dow dropped 2.4% and the Nasdaq dropped 2.9% on the news that the Fed is having concerns about the fragile state of the US economy. The bias has now shifted towards easing interest rates in the future. The dollar weakened against the euro and yen. US watchers are focussing on the announcements from around 700 Ceos and Cfos that they are certifying their accounts.

According to recent press reports Chinese soya bean imports are set to boom in the 2H02. A Chinese industry group estimated second half imports of as much as 6-7Mt. However, these estimates of a boom can be put into context when considering that 2H01 totals reached 8Mt. With just 3Mt imported in 1H02 this would imply a reduction of 21% for the year. Therefore, while the improvements on 1H02 are impressive the total would still be disappointing compared with estimates at the beginning of the year.

The introduction of retroactive pricing last year is causing a fall in demand for Iraqi crude exports according to recent reports. Iraqi exports have halved to around 1 million b/d in the past three months as traders show some reluctance in buying Iraqi crude. Meanwhile illegal exports to Syria are growing and are currently at an estimated level of 0.23 million b/d. This has raised total Syrian oil exports to 0.4 million b/d 10% up on June's figures.

A new pro-active pricing scheme is under consideration by the UK and France to address the problems of smuggling and a deteriorating humanitarian aid situation in Iraq.

Dated Brent was trading at $25.04/barrel by late afternoon in London today.

In the last two months world steel production has reached record levels, June saw a 5% year on year increase potentially providing an annualised figure of 897 million tonnes. This is a massive increase compared with the 2001 annual production of 847Mt. The production rate presently being experienced could reputedly lead to an excess of 35million tonnes (4% of the market). Global demand is not sufficient to support present supply levels and, given present global economic weakness, is unlikely to recover strongly in the short term. Once inventory levels have reached capacity there is a real threat of a price slump in 2H 02.