News archive July 2002

Latest US economic data has delivered bad news to the recovery as the annual rate for 2Q02 slipped to 1.1%. Although there was an expectation that it would fall from 1Q02 the lack of fundamental growth has increased the risk of a double dip recession in the US. Principal reasons were given as lack of consumer spending and cuts in business investment. Consumer confidence is also slipping while the Treasury Secretary's forecast of 3.5% growth for the US in 2002 means growth of just under 4% will be required for the balance of this year.

For the first time in 12 months, US refinery utilisation rates moved higher than the figures of the previous year. The four-week average of US refineries currently stands at 95.1%, compared with 94.4% this time last year.

Total US demand has risen over the last few weeks on last year's levels and crude and gasoline stocks have fallen significantly.

Dated Brent was trading at $25.71/barrel by late afternoon in London

The total figure for steel exports from Japan in June 2002 was 3.2Mt. This is a massive increase of 29.3% from the previous June (although these figures remain preliminary). The rise in exports has gone against expectations due to newly introduced tariffs in China at the end of May. The export figures also increased from those of May 2002 by 0.7%. The majority of the new exports have gone to Asia whose imports from Japan have risen by 45.2% over the course of the year.

Reports from the Japanese government have shown the country's first increase in crude oil imports for nine months. Import figures were up 1.5% in June, year-on-year; total crude imports to Japan are now at about 3.7 mb/d.

Despite an overall rise in imports, Japan's dependence on Middle East crude has fallen over the last 12 months. The percentage of Japanese demand catered for by the Middle East is falling - from 87.1% in May to 84.6% in June. Many Asian buyers have been raising their imports of West African crudes particularly as the price differential between Brent and the OPEC basket has narrowed.

The rise in crude oil imports comes amidst mixed economic data from Japan. Industrial output remains firmly in negative territory, retail sales are about 2% lower than last year, but surveys suggest that consumer confidence is rising.

Dated Brent was trading lower Monday at $24.95 by late afternoon in London.

The total figure for steel exports from Japan in June 2002 was around 3.2 mil tons, this is a massive increase of 29.3% from the previous June. The rise in output has gone against expectations due to newly introduced tariffs in China at the end of May.

The export figures also increased from those of May 2002 by 0.7%. The majority of the new exports have gone to Asia whose imports from Japan have risen by 45.2% over the course of the year. A fall in steel exports has occurred to Europe and America.

It has been reported in the press that OPEC is suggesting that a rise in production could be possible after the members meet in September. A source from the group is quoted as saying that such a rise would only come about if the market remained stable and if there were no problems to the supply side of the industry. The current production ceiling was set in January 2002 at 21.7 mil b/d for OPEC 10,(although production is above this figure by about 1.2 mb/d). A rise in OPEC output would be welcome news to the tanker sector, which has felt the effects of fewer cargoes, high oil prices and weak demand levels and faces substantial net fleet growth by the end of the year. Oil prices today were trading lower at $25.12/barrel by late afternoon in London.

OPEC secretary general Alvaro Silva told the financial press today that the Organization would only put more oil onto the market if prices rise another 12%. OPEC's reluctance to raise prices is in the face of only modest oil demand growth and fears of a price fall to under $22/barrel. Oil prices today were generally lower. Dated Brent was trading at $24.91/barrel by late afternoon in London.

Half year Chinese steam coal exports demonstrate the difficulty that sellers have had on the international market. Figures for exports to Japan showed a fall of 8.2% from 1H01 to 7.1Mt, Korea was down by 4.9% to 10.8Mt. The total fell to 28.9Mt, a drop of 7.8% on a year on year basis. On the brighter side for exporters was an improvement in June's total export number to 5.5Mt. The average monthly exports in 1H02 have been over 25% down on 1H01 at 4.8Mt, but look to be picking up. The low international steam coal price has made it particularly hard for China to win spot tender business.

The US dollar has edged back towards parity with the euro after sharp losses on both the US and European stock markets. After opening the Dow dropped 1.4% with the S&P500 also suffering losses of nearly 2%. The weaker dollar was at Y116, only just off of 16 month lows. The euro rose more than 1cent against the dollar to $0.998.

According to the Japan Iron & Steel Federation, Japanese apparent steel consumption rose to an 11 month high of 6.2 Mt in May. This suggests that the recent rise in Japanese crude steel production (to 27.3 Mt in the 2q02) was not wholly driven by booming steel exports. Nevertheless, exports remain the key driver (the May figure of 3.2 Mt was one of the highest on record) and as such must be at risk from steel tariffs in key Asian markets (i.e. China).

Despite the continued in spot steam coal prices, some recent Asian data are positive for demand. For instance, Korean imports of steam coal to the end of May were running 12.8% ahead of last year's levels, while statistics from Japan's Federation of Electric Power Companies, show that mid-2002 power company coal stocks were 625,000 tonnes (12.4%) below their end-June 2001 levels.

Reports from Venezuela have indicated the country will up its production of oil during the second part of 2002, going against the quota limits set by OPEC. The possible increase has been justified by the lower (sub-quota) production figures for the first part of the year. This announcement contributed to a fall in oil prices yesterday. Even so, prices are still 35% higher than last year. Venezuela indicated it would raise production levels by 400,000 b/d -16% over its OPEC quota. Last month OPEC 10 production was about 1.2mb/d over its own target of 21.7m b/d. OPEC has indicated this week that it might try and raise the current price target to a band of $25 - $28 / barrel. This would mean lower production quotas and/or stricter compliance. Dated Brent was trading at $25.91/barrel in London by mid-afternoon Friday.

The total world output of crude steel has risen by 3.9% from 414mt in the first half of 2001 to a level of 430mt in 2002. The rise in figures is mainly down to large increases in production from the Asian region, China particularly stood out with production levels 27% up from last year.
Larger production regions with the obvious exception of China all had negative growth figures. The largest decrease was shown by North America whose figures were 3.4% down from last year, the USA itself dropped in production by 5.1%. The CIS, Europe and the EU all had reduced output of crude steel.

Reports suggest Mexican Oil production could rise by 0.5 mb/d to over 3.6m b/d by the end of the year, a significant increase on the PEMEX production figure for the first half of 2002 at 3.1 mb/d. This, despite the country placing a (self-imposed) limit of 1.66 mb/d on its
crude export capacity for the third quarter of 2002. Exports in the 1h02 were lower than last year at 1.6 mb/d as Mexico supported OPEC's cuts. The International Energy Agency forecasts a large rise in Mexican output for 2003 at 150,000 b/d. Oil prices were fairly stable today with dated Brent trading at $26.30/barrel in London by late afternoon.

A combination of the failing stock global markets and US corporate scandals has created a drop in confidence in the dollar. There has been a significant loss in value to the yen. Since the beginning of 2002 the yen has risen almost 15% from a figure of 135 to a 17 month high of 116 yen to the US dollar.
The Bank of Japan, in is regular monthly outlook, stated the condition of the Japanese economy as a whole has stabilised with particular improvement from exports. Despite this confident statement the underlying fact is that export prices have risen by one sixth since January and loss of international competitiveness could dampen economic recovery

In spite of the negative economic sentiment created by falling world stock markets, bright spots for industrial activity still remain. The most obvious is China, where official figures show that the economy grew by 7.8% in the first half of 2002. This exceeded the government's growth target of 7%. Increased levels of government spending (up 24.4% on the previous year) and improved exports (+14%) have been the key drivers of this year's economic expansion. Chinese oil demand grew by almost 2% between the 2q01 and 2q02 to about 5.3
mb/d, whereas its production remained at a steady 3.3mb/d. Oil prices were slightly higher today with Dated Brent trading at $26/barrel by late afternoon in London.

In spite of the negative economic sentiment created by falling world stock markets, bright spots for industrial activity still remain. The most obvious is China, where official figures show that the economy grew by 7.8% in the first half of 2002. This exceeded the government's growth target of 7%. Increased levels of government spending (up 24.4% on the previous year) and improved exports (+14%) have been the key drivers of this year's economic expansion.

Oil prices were trading higher today with Dated Brent trading at $26.39/barrel by late afternoon in London. The rise comes as speculation over US military action in Iraq mounts (and in spite of
lack-lustre global demand levels). The higher 2q02 oil prices are expected to prop up profits for major oil companies and will offset losses made in the downstream (refining) business. Energy companies
meanwhile have taken a hit on the stock markets today as probes into accounting and trading procedures take place.

US soyabean exports for the 2001/02 season have been exceeding expectations, according to the USDA. Total export commitments (including outstanding sales and accumulated exports) now stand at 25.6Mt, up 55 from the same period last year. Total exports are forecast to reach 28.2Mt, a 4% rise on last year. Restrictions by Chinese importers has resulted in a 23% fall in trade there. However, major increases have been registered to Canada, Mexico, Colombia, Egypt, Romania and Turkey as well as increases in EU imports. Soya meal exports are also forecast to rise by up to 1% this crop year.

The International Energy Agency has dramatically reduced its global oil demand forecast by 40% from its last month's report due to weaker than expected second quarter demand and meagre economic recovery. The IEA now estimates that demand will rise by 250,000 b/d (rather than by 420,000 b/d as last reported). The Agency said that demand will recover in 2003 however, by an estimated 1.1 mb/d (1.4%) - returning to levels seen during the 1990s. The IEA has also estimated that non-OPEC oil supply will rise by 700 kb/d in 2003 with the gains led by the FSU and North America. This is 6.7% more than was forecast last month. The agency estimates OPEC crude supply to rise by 230 kb/d next year. Despite the bearish data on oil demand, crude oil prices were higher today on the back of concerns over labour unrest in Venezuela and possible disruption to supplies. By late afternoon in London, Friday, Dated Brent was trading at $26.01/barrel.

Crude oil prices were fairly volatile today as traders jumped between demand side concerns and worries over supply interruptions in Venezuela. A sharp fall in world-wide stock markets today renewed fears that a revival in the global economy is still some way off. This has put into doubt future demand levels for oil and put negative pressure on prices. On the other end of the scale, there was some upward pressure on crude oil prices later in the day Thursday, following an anti-Chavez march in Venezuela. The nervousness raised concern that shipments of crude to the US might be interrupted - as they were in April - if there is renewed political and civil unrest in that country. Dated Brent was trading at $25.65/barrel in London by late afternoon Thursday.

The latest OECD composite leading indicators showed gains in May, which was the seventh consecutive month. The rise of 0.3% was on the back of a 0.8% rise in April. The smoothed 12-month change rose above the long-term growth rate to 2.8%, a strong positive indication for industrial demand for shipping in 2H02 and into 2003. Europe improved across the board, even after disappointing German economic data.
Japan's CLI index rose for the seventh consecutive month, demonstrating a modest turning in its industrial cycle, but a self-sustaining improvement in industry based on Japanese-led demand appears distant. Oil prices were slightly higher today following a decline in US inventories last week. The drop in US inventories was the largest in two months and was caused by a slowdown in imports - the lowest since March 22 after a Canadian pipeline was shut. By mid-afternoon in London, Dated Brent was trading at $25.18/barrel.

Chinese coal exporters are having to face the realistic prospect of being priced out of the import market in Japan, one of its key buyers. This comes as a leading Chinese exporter is offering additional tonnage above the levels stipulated in the contracts. They are losing out after fixing a Cif price under contract of $30.62. The Australian coal price has plummeted to as low as $22/tonne spot and, with a freight differential of around $4/tonne it would suggest that Chinese exporters would have to drop prices by as much as $5/tonne from the contract price to gain business. This change in sourcing has a two-fold effect on the market where Australia/Japan is more typically a Capesize trade than China/Japan and in terms of tonne/miles it stretches ship demand.

A local Nigerian newspaper has reported that the country is under pressure to leave OPEC so that it can meet the growing US appetite for non-Middle East crude by increasing production. According to a paper submitted to the US Government by an American body, the African Oil Policy Initiative Group, the US is seeking to diversity its crude source. The head of the AOPIG said that the US is hoping to double its imports from Nigeria, from 0.9m b/d to around 1.8 mb/d over the next five years on strategic grounds. Nigeria produced 1.93 mb/d in May 2002, above its OPEC target of 1.79 mb/d. There is also pressure coming from independent oil companies for Nigeria to increase its production level allowances. Oil majors have shown some concern about their investments and profit levels under the current restraints - at present the oil majors' production targets are not being reached due to the OPEC quota. Oil prices were lower today, with Dated Brent trading at $24.64/barrel by late afternoon in London.

Figures for April 2002 show a huge hike in German coking coal imports, fuelling belief that much of the worst of steel mills production lows has passed. While they are almost double the total in the same month in 2001 for coking coal the steam coal numbers are falling compared with the same month as last year. In total though the first quarter steam coal imports were in fact 10.3% ahead of last year.