News archive June 2003

We are now in a position to offer you the required trading software and request you download the following for your review and signature:

The required trading software (please contact us if you require any assistance with this). [Download]

The globalCOAL and SSY user guide. [Download]

The globalCOAL and SSY Customer Agreement and Risk Disclaimer. [Download]

We believe Global Coal Limited is an idea partner for SSY as: (1) It is an established, fully functioning site with professional/experienced Market Managers and; (2) Global Coal Limited's existing Shareholder and user base will give momentum to liquidity. However, please note the routes featured will not be restricted to both cape and coal routes only, but will include the most heavily traded panamax routes.

Although there will eventually be a monthly cost for software licenses (which is industry standard Trayport Software) we would like to offer you the facility free for an initial 3 month trial period. If you decide to subscribe after the initial trial period, then you will be charged a monthly fee for usage of the system.

After having signed and returned the agreements (which are 'standard'), please contact either Mark Richardson or Richard Haines at SSY Futures, who will then activate you account and give you all the necessary instructions and documentation you may require to start trading.

We intend to go fully live in mid-May but we plan some 'mock-trading' sessions before then.

We sincerely hope and believe this venture will be of great commercial value to you in addition to enhancing SSY's service in the freight derivative sector.

According to Japanese Ministry of Economy, Trade and Industry (METI), crude oil imports in May rose by 13.6% year-on-year, to 4.02 mb/day. Refinery operating levels have increased accordingly, from 71.1% a year ago to 78.7% in May, although down from April's 86.1%.
This rise in imports has been a major factor in strengthening crude oil prices, as well as freight rates, particularly for Aframax and MR clean tankers in the Far East.

The news of a general strike in Nigeria as of Monday has added to the upward pressure on oil prices even though it is unclear as to whether walkout will affect the country's oil sector. The protest is in reaction to the removal of fuel subsidies, leading to a rise in domestic fuel prices. Nigerian production was above 2mb/d in May -- well above the 2002 average but below levels seen in the 1q03.

The decision by the Federal Reserve to cut US interest rates to a 45-year low of just 1% underlines growing concerns over the economy's recovery and the risks of deflation. Industrial production data for May showed a year-on-year fall of 0.8%, while indicators of consumer confidence remain fragile.

US oil imports averaged at 9.3 mb/d last week (after a few weeks of averaging above 10mb/d), which led to a drop in inventories at a time when they are traditionally built. "With inventories very low for many months now, sustained high import levels will be critical if inventories are to rebuild over the next several months," reported the US Department of Energy. The Department warned that if American gasoline demand begins to rise late in the summer, the US will have to import more oil in the form of crude oil and refined products, "in order to continue to rebuild inventory levels and provide a cushion against the possibility of price spikes later this year". US Gasoline demand has been surprisingly weak so far this summer, due in part to bad weather on the East Coast.

Latest Chinese customs data put China's total dry bulk imports for the first five months of 2003 at 107.7 Mt, a year-on-year increase of 35%. By the end of May, China's iron ore imports for 2003 stood at 61.0 Mt compared to 42.2 Mt after the first five months of 2002. Substantial rises have also been seen in Chinese imports of soya beans (up 4.8 Mt year-on-year to 7.7 Mt) and steel products (up 4.6 Mt to 16.5 Mt).

Contrary to expectations US inventories of crude and products fell last week, according to a US Energy Department report. Crude stocks were down by 1.4%, with imports running at 9.3mb/d, having averaged close to 10mb/d for the previous 2 months.
With prices moving higher, refiners are only buying what they need for immediate consumption, in the expectation that oil prices may fall in the short term.

The export terminal of Mina al Bakr will officially reopen on June 26th, with the loading of the first Iraqi crude cargo in the Gulf since the war. According to market reports today, the port is now
ready to handle crude exports - although hampered with a series of problems, Iraqi oil production is far from returning to pre-war
levels. Oil prices, meanwhile, remain relatively high with Brent trading at above $26/barrel by late afternoon in London.

After late Friday?s and today?s initial strong rally, in crude oil prices, markets are now softening and coming back to more rational levels. Brent, having achieved a high of around $27.30 in early trading today in London, (apparently on news that Iraqi oil production will be slower in resuming than had been anticipated), is now easing as the realisation that there is currently no new news or reasons for prices to escalate.
Sabotage of oil and gas pipelines in Iraq is becoming a greater problem, as the first crude exports have now started, and is clearly likely to cause more disruptions to supplies.

Nuclear power generation by Japan's 10 major utilities fell by 52% year-on-year in May to 12.91bn kWh due to the continuing shutdown of nuclear capacity for unscheduled safety inspections. Thermal generation (which includes coal, oil and gas) was up by 43% to 36.19bn kWh. Following the restart of Kashiwazaki-Kariwa reactor No 7 last week, Tokyo Electric currently has just two of its 17 nuclear reactors operational.

After last years increased confidence in an economic recovery, Japan appears now to be indirectly suffering from the SARS virus. The hoped for export led recovery has now been dashed by the strengthening of the yen, together with the lack of demand, particularly in Asian markets, for Japanese exports. Total exports in the first quarter of this year fell by 4% year-on-year.
Strong demand for kerosene as a result of the cold winter and also for fuel oil to replace nuclear power outages, produced increased profits for refiners in the fiscal year up to March 2003. If the nuclear situation is not resolved in the near future, continued demand for crude, fuel and products imports will ensue, creating more opportunities for shipowners.

The first post war loading of Iraqi crude oil at Ceyhan has been confirmed for Sunday next, on a Turkish flag vessel. Further liftings are scheduled to take place during the course of next week. However organised sabotage is continuing to hamper efforts to restore production and the Kirkuk/Ceyhan pipeline has now become a regular target. Iraqi production at the moment is running at close to 600,000 bbls/d, (close to current domestic consumption) and is only expected to reach 1.5mb/d by the end of the year. This is considerably less than had been anticipated by now. The expectation of regular export cargoes from Ceyhan and Al Bakr therefore seems still to be some way off.

Latest reports from Metal Bulletin indicate that prices of steel imports into China have rebounded since end-May, with hot coil import prices increasing by as much as $20-30/tonne and edging closer to the relatively stable domestic prices. In the three weeks since the introduction of Beijing's latest year-long import quota (which runs from May 24), Chinese steel importers are reported to have filled approximately 10% of their quotas for the year.

Latest estimates from the International Iron & Steel Institute reveal that May set a new record for global steel production, up by 7% year-on-year to 80.7 Mt. China's output increased by 21% to 18.5 Mt while Japanese production continued to defy weakness in its domestic economy, rising by 3% to 9.7 Mt.
However, the global increase masks a slowdown by some major producers. Korea's output of 4.0 Mt last month represented year-on-year growth of just 1% compared to 3% in April, while concerns over the US economy are likely to be compounded by last month's 7.5 Mt production representing a year-on-year decrease of 2%. EU output picked up slightly to 14.0 Mt, up 1% on May 2002.

According to the API weekly report, gasoline stocks in the US have risen week on week, and stood at close to 210.8 million barrels, an increase of slightly under 1%. More surprisingly in their report they also mark crude stocks up by 4 million barrels from last week. With refineries running at close to record levels, inventories look to have made some small recoveries, taking pressure off crude oil prices

With seasonal maintenance coming to an end in the North Sea, July's loading schedule shows some marked increases. Brent is up by 1.87 million barrels and Troll by a massive 5 million barrels almost double that of June. However Forties is still not back to full strength.
With June cargoes having been traded out very early in the period, due to a wide trans-Atlantic price spread, July stems have been awaited with some impatience. However in the meantime the bulls have gone quiet, since the IEA revised its OECD commercial inventory figures for March upwards by 78.8million barrels. Thus it appears that the demand pressure from the US has subsided and the arbitrage possibilities have disappeared with it.

The USDA has reduced its estimate for 2003/04 Chinese corn production down by 4 Mt from last month and by 4 Mt from 2002/03 to 118 Mt, due to lower forecast area and yield. Farmers have reportedly shifted to other crops in response to market signals and incentives to cut grain production, while crop prospects have been hit by recent dry weather in the major growing area, the North China Plain. The USDA currently estimates that China will export 8 Mt of corn during the October 2003-September 2004 trade year compared to 13.5 Mt in 2002-03.

After last weeks drop in prices as a result of OPEC maintaining quota's, market perceptions are now more focused on the low inventories in the US.
After last week's report from the EIA, highlighting higher crude imports but lower stocks, and with gasoline reserves currently 2.1% lower than a year ago, fears are being aroused that there will be shortages of products in the coming summer. This may well drive domestic gasoline prices higher, creating demand for imports from Europe and with it the demand for clean tonnage.

The University of Michigan's consumer sentiment index registered a surprise fall back to 87.2 in June from 92.1 in May, contradicting analysts' expectations of a moderate increase, the BBC has reported. Its future expectations component, which gauges consumers' outlook on the future of the economy, fell particularly steeply to 84.2 in June from 91.4 last month. Consumer spending accounts for two thirds of all economic activity in the US and the Michigan index is seen as a reliable guide to the health of the economy.

In its latest monthly report, the International Energy Agency says that fuel switching from nuclear (in Japan) and natural gas (in the US) will add to seasonal demand strength from the third quarter of this year. With no sign of full reinstatement of its nuclear power plants, Japan's oil imports during the 2h03 are likely to be above the seasonal norm. Meanwhile for the US market, the IEA says high natural gas prices will support demand for heavier products in the third quarter. These factors should raise tanker demand and could put some upward pressure on rates, at a time of rapid net fleet growth.

The European Central Bank has cut its forecast for eurozone growth in 2003 to 0.7% from the 1.6% previously predicted. In 2004, the ECB now predicts growth of 1.6% compared to its previous forecast of 2.4%. The latest revision comes after both Germany and France announced a fall in industrial output for April. Germany was down by 1% while France fell by 0.8%.

Product inventories in the first week of June have increased at the expense of crude stocks. Despite near record crude imports averaging almost 9.9mb/d last week, stocks declined by 4.6mb. This was due to increased refinery throughputs, building stocks of gasoline by 2.6mb and distillate fuel oil by 2.8mb. With the driving season now well underway it appears that refiners, unable to build both crude and product inventories simultaneously, have elected to get products stocks back to near normal levels before crude oil. With the first shipments of Iraqi oil imminent, reportedly 5 million barrels destined for the USA and 4 million to Europe, all eyes are on Iraq to see what production levels will be achieved, and whether they can bring any relief to the continuing low stock situation in the US.

At its meeting in Doha today, OPEC agreed to maintain current output quota at 25.4 mb/d with strict compliance. Its decision was based on the fairly high oil prices at present and the expectation of OECD stock replenishment over the 3q03. Iraq was not present at the meeting and its production levels are not thought to be affected by the OPEC decision.
OPEC has re-iterated that it would like non-OPEC producers to co-operate in order to maintain market stability.

SSY's latest estimates put net fleet growth in the dry bulk carrier fleet during the first five months of 2003 at 3.1 Mdwt, compared with 5.8 Mdwt for the same period last year. New additions to the fleet remained at a low level in May, while deletions had their busiest month so far this year, with eight Handysize, two Panamax and one Capesize vessel reported sold for scrap.

Kuwait, Indonesia and UAE have all stated, ahead of tomorrow's OPEC meeting, that there is no need for cuts in production at the present time. With production developments in Iraq taking longer than at first anticipated, there is so far no indication of an oil glut and therefore no need to defend prices, which at the moment are softening.
State Oil Marketing Organisation's (SOMO) tender for the sale of crude oil in storage was due to close today, however reports indicate that there has been an overwhelming response from buyers and they may extend the closing by a day. Once oil is loading at Ceyhan and the pipeline from Kirkuk is back in use, it will be possible to get a better insight as to actual production levels.