News archive August 2004

The International Grains Council has lifted its forecast for the world wheat and coarse grain trades for 2004/05, but this still falls short of last season's estimate. Global wheat exports in 04/05 are predicted to be 100.8 Mt - 1 Mt up from last month's forecast, but 0.9 Mt shy of the 2003/04 estimated figure. The IGC notes that this season's revival in the Russian and Ukrainian wheat crop led to a sharp reduction in projected imports (from 4.5 Mt to 1.1 Mt). This will be compensated to a large degree by an increase in Chinese wheat imports (from 3.7 Mt to 7.0 Mt this year).

In 2004/05, world coarse grain exports are predicted to total 103.0 Mt - up 0.5 Mt from July's forecast, but below last season's total of 105.2 Mt. The IGC attributes the decline in trade to larger corn harvests in Europe.

Industrial action by Indian port workers and seafarers scheduled to begin today (August 31) could disrupt iron ore exports to China as well as coal imports from Australia, the Metal Bulletin reports. A backlog of iron ore shipments bound for China as a result of alleged contamination had recently been cleared from Indian ports. The Metal Bulletin anticipates greater problems for the Indian steel industry as coking coal imports from Australia are frequently transported in Indian-flagged vessels.

According to figures released by the Japanese Ministry of Economy, Trade and Industry (METI), industrial growth having fallen in June by 1.3% month-on-month, has remained flat in July. Analysts had expected industrial production to increase by about 1% in July, and the disappointing figures caused the Nikkei Index to fall 1.18% in Tokyo today. Recently released figures indicate that householder spending fell for the third consecutive month in July, and unemployment figures for June rose from 4.6% to 4.9%.
However despite the gloomy figures, METI is sticking to its forecast that Industrial Production will increase month-on-month in August by 1.5% and by 0.6% in September.

The International Grains Council has lifted its forecast for the world wheat and coarse grain trades for 2004/05, but this still falls short of last season's estimate. Global wheat exports in 04/05 are predicted to be 100.8 Mt - 1 Mt up from last month's forecast, but 0.9 Mt shy of the 2003/04 estimated figure. The IGC notes that this season's revival in the Russian and Ukrainian wheat crop led to a sharp reduction in projected imports (from 4.5 Mt to 1.1 Mt). This will be compensated to a large degree by an increase in Chinese wheat imports (from 3.7 Mt to 7.0 Mt this year).

In 2004/05, world coarse grain exports are predicted to total 103.0 Mt - up 0.5 Mt from July's forecast, but below last season's total of 105.2 Mt. The IGC attributes the decline in trade to larger corn harvests in Europe.

Hot weather in Japan has pushed power generation by the country's leading ten utilities to record levels in July. Data from the Federation of Electric Power Companies of Japan (FEPC) show that coal consumption reached the historic high of 4.4 Mt in July. The data suggest that coal-fired generation proved inadequate for the country's energy needs, as crude oil consumption leapt from 212 kilolitres in June to 1,006 kl in July - the highest since January 2003.

July crude oil imports into India have risen from 1.61mb/d in July 2003 to1.99mb/d, an increase of 23.3% year-on-year. The increase in crude imports is driven by rising domestic demand for products, particularly diesel oil, which accounts for about 40% of the country's total product demand. Demand for diesel was up by 13% year-on-year to reach 0.84mb/d and total oil demand rose to 2.31mb/d in July an increase of 3.8%.
Exports of products were also higher year-on-year, averaging 0.29mb/d over the first 4 months of this year compared with 0.27mbd in 2003. More than 40% of product exports shipped on the spot market are carried in MR tonnage.

Chinese car production in July fell by over 20% year-on-year to 170,400, the Financial Times reports. The decline follows the introduction of tighter credit controls in a bid to avoid a "hard landing" of the Chinese economy and is thought to be partly the result of power shortages and slower growth in domestic sales. The FT adds that some analysts anticipate higher growth in the 4q04, but that a return to previous high levels would depend on the easing of government-imposed credit restrictions. July sales increased by only 2% YOY.

According to the latest US Department of Energy figures released today, distillate stocks increased over the last week by 0.5mb reaching a total of 125.1mb, 2.7% higher than a year ago, but lower than the 1.325mb increase expected by analysts. US product demand last week soared to 4.1mb/d an increase of 9.3% year-on-year, however distillate prices have shown little change.

The German economy grew by 2% year-on-year in the 2q04, the BBC reports. Much of the growth in the eurozone's largest economy was attributed to exports (rising 3.3%) rather than domestic demand, leading to concern in some quarters that the economy was over-reliant on the strength of other economies. Earlier this month, the OECD raised its growth forecast for Germany in 2004 from 1.1% to 1.5-2%, but called for improved efficiency and an end to public finances in deficit.

The latest International Iron & Steel Institute data for July show that world steel output reached 85.6 Mt - 9% higher than in July 2003. The Chinese steel industry appears to be maintaining its rapid expansion: in the year to July, production was up a massive 21% year-on-year and during July output also rose 20.3% to 22.0 Mt. China accounted for over 25% of world steel production in July.

Among other major steel producers, output was strong. In July, EU-25 output grew 9.8% YOY to 16.1 Mt, the US produced 8.0 Mt (up 7.4%) and Japanese output continued at high levels, reaching 9.5 Mt (up 3.1%).

Chinese aluminium production set a monthly record in July for the fifth month in succession, reaching 554,000 tonnes, according to the International Aluminium Institute. China now accounts for 22% of the world's aluminium output, increasingly serving as a focal point for the alumina and bauxite trades. By comparison, output growth in the rest of the world was 4.1%.

The Financial Times reports that the world's three largest iron ore producers plan to expand combined annual output from 390 Mt to 600 Mt in the next four years. BHP Billiton, CVRD and Rio Tinto currently account for over half of global production. Some 100 Mt of extra capacity is reportedly planned in Brazil, where CVRD and its affiliates are seeking to raise production from 200 Mtpa to 300 Mtpa.

According to Investment Bankers in South Korea, GDP was up 5.5% year-on-year in the second quarter this year, an increase of 0.6% from the previous quarter. South Korea imports all of its crude oil and is the world's sixth largest oil consumer.
GDP growth is being driven by strong exports to China, but Korea's domestic spending is trailing export growth and given the current high oil prices it is unlikely that there will be any significant increase in spending.

US coal exports in the 1h04 rose almost 25% year-on-year to 22.5 Mt, reflecting continuing global supply tightness. Some 6.7 Mt went to Canada, while 7.3 Mt was exported to the EU-25, 2.8 Mt was exported to Japan and 2.1 Mt was shipped to Brazil. Meanwhile, US coal imports over the same period rose 7.4% to 11.0 Mt, according to trade data published in the Tex Report.

Despite strong oil supply and demand fundamentals the price of oil is being spurred ever upwards by fears of disruptions to oil supply. The facts are that at the end of July global oil supply was 83.3mb/d and demand was 81.7mb/d -- a difference of 1.6mb/d.
According to the US Department of Energy, global inventories grew in June by 1 mb/d and in July by 0.9 mb/d, to reach 6.243 billion bbl, and increase of 125 million bbls from July 2003. However given the strength in global oil demand, these stock builds are insufficient to curb the current rising price trend.

The latest International Iron & Steel Institute data for July show that world steel output reached 85.6 Mt - 9% higher than in July 2003. The Chinese steel industry appears to be maintaining its rapid expansion: in the year to July, production was up a massive 21% year-on-year and during July output also rose 20.3% to 22.0 Mt. China accounted for over 25% of world steel production in July.

Among other major producers, output was strong. In July, EU-25 output grew 9.8% YOY to 16.1 Mt, the US produced 8.0 Mt (up 7.4%) and Japanese output continued at high levels, reaching 9.5 Mt (up 3.1%).

According to State Oil Marketing Organisation of Iraq (SOMO), Iraq is still only able to export about 1mb/d crude oil. Intense fighting in the south of the country and threats of sabotage to pipelines feeding the export terminals in the MEG, are restricting loadings. Only the smaller of 2 pipelines feeding the export terminals is at present in operation, and tankers are experiencing about 5 days delay in loading operations. There has been limited and infrequent pumping from Kirkuk to Ceyhan in the Mediterranean, however stocks in Ceyhan are only around 4 million bbls, and a tender for sale of crude will not be issued until maximum capacity of about 8 million barrels has been reached

Brazilian coal imports continue to expand at a healthy pace, reaching 8.2 Mt in the 1h04 (from 7.7 Mt in the 1h03 and 5.0 Mt in the 1h02), according to trade data published in the Tex Report. The data reveal a major shift away from imports from China (down 68% to 0.46 Mt) to Australia (up 39% to 3.0 Mt) and the US (up 47% to 2.3 Mt). In 2003, Brazil imported an estimated 15.3 Mt of coal, around 11.9 Mt of which were coking coal and 3.4 Mt steam coal.

OPEC's 11 members pumped an average 29.57mb/d in July, up 599kb/d from June's 28.971mb/d, according to the secretariat's latest Monthly Oil Market Report. The June figure has been revised upwards from the 28.92mb/d estimate of the previous report. OPEC 10 (excl.Iraq), produced an average 27.574mb/d in July, 2mb/d in excess of the 25.5mb/d July ceiling and more than 1.5mb/d in excess of the current 26mb/d ceiling which came into effect Aug 1.
OPEC has been steadily increasing production in an attempt to curb prices, but concerns are growing over limited surplus output capacity, and prices have continued to rise despite OPEC's efforts.

Industrial production in the Eurozone rose 2.7% in June year-on-year, the BBC reports. However, more pessimism among investors was apparent in Germany, where the research institute ZEW published a survey indicating investor confidence had fallen to its lowest level for 13 months. The disappointing findings in Germany contrast with the OECD's decision this month to raise its GDP growth forecast for the country in 2004 to 1.5-2% from 1.1% three months earlier.

According to China's State Information Centre, most of China’s economic indicators have shown a slowing in growth over the past few months in line with government policy. Crude oil imports however have risen nearly 40% over the first seven months of 2004, and higher crude prices are beginning to affect GDP, which now is projected to drop from 9.8% (as previously forecasted) to about 9% for the year. Chinese crude oil imports are projected to average 2.4mb/d this year. Whilst the Chinese Government is keen to prevent economic growth escalating out of control, there have been no restrictions placed on crude imports as energy supply is fundamental to the country's strategy.

The US Dept of Agriculture has forecast that wheat exports from Russia and Ukraine combined for 2004/05 (July-June) will reach 8 Mt - up 1.5 Mt from July's prediction and up 4.5 Mt from 2003/04's estimate. Sales of feed wheat from the Black Sea have already been recorded to buyers in South Korea, the Philippines and the Mediterranean, reportedly at prices up to $20 below the CIF price for corn. In contrast, US wheat exports for 04/05 were revised down 0.5 Mt from last month's prediction to 25.5 Mt - down 6.5 Mt from 2003/04's estimate.

Japan's second largest utility, Kansai Electric Power Co, has announced the gradual, temporary closure of all of its 11 nuclear reactors for checks following a fatal accident at its Mihama plant. Three more nuclear plants for safety inspections on Friday, adding to the three already closed. Th remaining five will be closed soon. The Japan Times reports that inspections will last one to two weeks per plant, and it will take at least one month for all checks to be completed. This is likely to sustain demand for coal imports at high levels, although increased use of oil-fired generation is expected to help make up for the nuclear shortfall.

Latest available data show that Japan's steam coal import demand has remained high, following the closure of all of Tokyo Electric's nuclear units by April 2003 for safety inspections (most of which have re-started), with 1h04 imports (including anthracite) of 50.6 Mt up by 8.6 Mt year-on-year.

Japan's second largest utility, Kansai Electric Power Co, has announced the gradual, temporary closure of all of its 11 nuclear reactors for checks following a fatal accident at its Mihama plant. This is likely to sustain demand for coal imports at high levels, although increased use of oil-fired generation is expected to help make up for the nuclear shortfall.

Latest available data show that Japan's steam coal import demand has remained high, following the closure of all of Tokyo Electric's nuclear units by April 2003 for safety inspections (most of which have re-started), with 1h04 imports (including anthracite) of 50.6 Mt up by 8.6 Mt year-on-year.

Brent futures in London earlier today hit $42.85, the highest price seen since the contract began trading in 1988. The Venezuelan presidential referendum on Sunday has raised fears of possible supply disruptions in the fourth largest supplier of crude oil to the US. Other negative factors this week have included hurricane Charley in the US Gulf, a fire at a BP refinery in Indiana, increased military activity in Iraq, and possible disruptions to Russian supplies in September, all of which have added to nervousness over supply. On the demand side, news that Japan is set to close some nuclear power stations in the Kansai area has led to speculation that higher volumes of crude imports (to feed oil power stations) may result and further squeeze oil prices.

The IMF's Article IV report on the Japanese economy has raised the Fund's GDP growth estimate for 2004 to 4.5% from its April estimate of 3.4%. The upward revision was due to better employment prospects and increasing private sector demand. The IMF now forecasts 2005 economic growth at 2.5%, above the April projection of 1.9%.