News archive February 2004

The China Iron & Steel Association (CISA) has warned that China's steel production may be constrained this year as a result of a shortfall of raw materials, in particular coke and iron ore. The People's Daily quoted the CISA Vice President, who echoed recent fears that the country's steel output may be limited by power shortages and transportation difficulties. Last year, China imported 148 Mt, and the CISA predicts that China would have to raise imports by 33 Mt (22%) in 2004 to meet domestic demand.

The United States government yesterday lifted its travel ban on Libya. Some U.S. oil companies have already been granted permission, on a case-by-case basis, to negotiate lease renewals on soon-to-expire Libyan holdings, as well as to conduct technical inspections of properties.
Libyan production would be a welcome source of additional oil to a market tightened by stringent OPEC policy and rising global demand. High oil prices have heightened concerns over the impact of increasing energy costs on economic growth. Libyan crude oil production in January averaged 1.48mb/day.

Force majeure has been declared at the Dalrymple Bay Coal Terminal due to the breakdown of a dedicated reclaiming machine, Platts reports. The terminal is thought to be operating at 40% for the next two weeks, rising to 50% for the following four weeks to allow for safety checks to be made on other yard equipment. Dalrymple Bay is one of the larger coal ports on the eastern coast of Australia and has a throughput capacity of 53 Mt/year.

According to Reuters reports, a consortium of foreign oil firms has signed a deal agreeing to delay first production from the mammoth Kashagan oilfield in the Caspian Sea until 2008, Kazakh officials said.
The deal lifts uncertainty over the start of production at one of the world's biggest discoveries of crude oil in the last 30 years. It is now estimated that commercial production will commence in 2007/8, at 75,000 barrels of oil equivalent/day (boed), and phase1 of the development is expected to be at peak production of 450,000 boed by 2010. Phase 2 production is expected to peak at 1.2mboed in 2016, and is likely to involve a pipeline to China, which is seeking new energy sources.

The IMF has boosted its forecast for GDP growth in Japan in 2004 to 3%, contrasting sharply with the projection of 1.4% made in September. The BBC reports that the revision was made in the light of the fastest growth in the Japanese economy for 13 years in the 4q03. Noting that Japan's economic prospects have "clearly brightened", IMF Managing Director Horst Koehler argued that exports to other Asian countries would drive the recovery in spite of the strong yen.

Coal exports from China have declined in January to 5.02 Mt - down 33% on last year, according to Platts. Similarly, coke and semi-coke exports for the month slumped 76% year-on-year to 0.35 Mt, reflecting the continuing increase in Chinese domestic demand. This follows yesterday's news that a 6.25% increase in Chinese coal production is forecast for 2004.

According to the latest official Chinese statistics, crude oil imports reached 91 million tons in 2003, up 31.3% from 2002. Domestic crude consumption rose to 252 million tons, an increase of over 10% year-on-year.
China's crude oil production grew by only 1.5% in 2003, 1% lower growth than in 2002.
Industry experts predict that China's oil demand may surge to 400 million tons by 2020, with an average annual increase of 12 percent. As domestic production decreases and robust economic growth continues, demand for imports of crude and products are set to continue growing.

According to the International Iron & Steel Institute, world steel production rose 8.4% year-on-year to reach 81.7 Mt in January. Significantly, Chinese output totalled 19.4 Mt in January - up 25% on last January's figure. Growth in the rest of the world over the same period was a more subdued 4%. EU and FSU output increased YOY by 5.7% and 7.5%, respectively. However, steel output in the US and Japan decreased YOY: US production fell by 0.4%, while Japan's output was down 0.2%. China imported 3.25 Mt of steel products in January 2004, up 8.9% year-on-year, according to Interfax. The figures, quoted from China's General Administration of Customs, indicate an increase of 6.2% from December 2003. With increasing attention being placed upon Chinese steel demand during this year, the latest monthly statistics suggest a further strengthening of domestic demand at the beginning of 2004.

Meanwhile, following the surprise OPEC announcement earlier this month of a cut in production quotas of 1mb/day from 1 April and the promised cut in current overproduction of 1.5mb/day by the end of March, Algeria has made it known that it is unable to comply. The current Algerian OPEC quota is 900kb/day, however, some 1.2mb/day is being produced. According to an announcement on national television last week, Algeria would have to increase tax on all goods and services by 3% in order to comply with the latest OPEC directive.

Official forecasts showing a 6.25% increase in Chinese coal production in 2004 have been released by the Chinese state news agency Xinhua. Projected coal output in 2004 is put at 1.7 billion tonnes, marking a rise of 100 Mt from 2003 and constituting a record high.

Coal shortages have been a key concern for the country's policy makers following widespread power shortages over the winter period. Xinhua added that coal-fired power stations due to come into operation in 2004 are expected to consume an extra 60-70 Mt of coal this year. Meanwhile, coal demand in the iron and steel industry is set to rise by 30 Mt in 2004, and additional coal consumption by the country's cement industry is projected at 10 Mt.

According to industry sources, there are doubts that Iraq can increase sustainable crude production and exports as quickly as the Oil Ministry indicates. The oil infrastructure is very fragile, with oil fields badly in need of investment to facilitate rehabilitation and repairs. In addition there is only one usable export terminal (Basrah Oil Terminal), which is already operating at maximum capacity. The only export alternative is the Kirkuk-Ceyhan pipeline, which is still not operational due to a combination of sabotage, and lack of maintenance at pumping stations. Current Iraqi production is about 2.0-2.1mb/d with exports at about 1.6-1.7mb/d. Concerns are rising that civil unrest will lead to supply and export disruptions.

Platts reports that a delegation from the European Commission has travelled to China in an attempt to secure coke supplies into the EU. The move follows reports earlier this week that Italy's Riva Group was closing its Ilva blast furnace, partly as a consequence of soaring coke prices, which have reportedly reached $390/tonne, marking a rise of over $100/tonne in a month. The tightening of the coke supply threatens to constrain European steel production.

According to the latest US Department of Energy figures, crude stocks in the US rose last week by 4.9 million barrels to reach 273.8million barrels. However, unusually, the majority of the increase occurred in the West Coast, and the major consuming area - the Midwest - showed a fall in stocks.
Refinery throughputs increased by 440,000b/d over the past two weeks, and the DOE forecasts that it will be necessary to average crude imports of about 10mb/day in the run up to spring as refiners switch their attention to rebuilding gasoline stocks.
Oil prices in New York are still higher than in Europe, presenting more opportunities for oil movements into the US and increased demand for both clean and dirty tankers.

Chinese media sources have reported the signing of a contract between a Chinese trade delegation and US grain suppliers for a purchase of 1 Mt of wheat. The delegation is scheduled to spend more time in the US and is reportedly considering further purchases. Details on the delivery date and value of the deal have yet to be announced.

According to the International Iron & Steel Institute, world steel production rose 8.4% year-on-year to reach 81.7 Mt in January. Significantly, Chinese output totalled 19.4 Mt in January - up 25% on last January's figure. Growth in the rest of the world over the same period was a more subdued 4%. EU and FSU output increased YOY by 5.7% and 7.5%, respectively. However, steel output in the US and Japan decreased YOY: US production fell by 0.4%, while Japan's output was down 0.2%.

Low US crude and gasoline inventories are putting upward pressure on prices and could strengthen demand for more imports in the near term. This would keep upward pressure on rates, particularly for trans-Atlantic trades.

There is already some concern that gasoline stocks will not be replaced in time to meet peak demand for the summer driving season. Crude stocks are currently being squeezed from pressure to produce gasoline and fuel oil when winter demand for heating oil is still ongoing.

According to industry sources, planned annual refinery maintenance (turnarounds) in Japan in 2Q04 will reduce refinery throughput capacity by about 900,000 b/d, compared to a cut of 500,000 b/d in 2Q03. The cut amounts to about 18% of total Japanese refining capacity and will temporarily reduce demand for imports of spot crude to half the level of a year ago. In the short term this is likely to bring downward pressure on VLCC spot rates from MEG to Japan, as the bulk of imports will be carried under term contract arrangements.

China imported 3.25 Mt of steel products in January 2004, up 8.9% year-on-year, according to Interfax. The figures, quoted from China's General Administration of Customs, indicate an increase of 6.2% from December 2003. With increasing attention being placed upon Chinese steel demand during this year, the latest monthly statistics suggest a further strengthening of domestic demand at the beginning of 2004.

The Chinese International Business Daily has reported that China's crude imports have jumped to 10.3 million tonnes (2.5 million barrels per day) in January, up 10% from December and up 23.1% year-on-year. Inventories are up 8-10% on December's figures, and refinery throughputs were also higher, indicating robust sales. The State Council Development and Research Centre has forecast China's crude imports will average a record 96 Mt (1.97 million bpd) in 2004.

Meanwhile, the US Department of Agriculture has not altered its 2003/04 forecast for Chinese soybean imports in its latest World Oilseed Report, maintaining its forecast of 23 Mt (up from 21.4 Mt in 02/03). This is despite recent speculation that the outbreak of bird flu could reduce demand for soybean imports into China. In the USDA's World Grain Report, the most significant revision is arguably the upward revision to US corn exports for 2003/04. The new projected total is 51 Mt (up 1 Mt from January's forecast and up 9.8 Mt in 02/03), making it the highest export total for 5 years.

Newcastle port operator Port Waratah Coal Services (PWCS) has sought to allay fears that a planned vessel quota system aimed at reducing port congestion would lower throughput, Platts reports. The chair of PWCS argued that 80 Mt would still be shipped out of Newcastle in 2004 regardless of any vessel nomination scheme. Should official approval be granted, the plan is to nominate shipments on a quarterly basis and be able to manage the vessel queue down to around 15 ships.

Since the surprise OPEC announcement last week, of a cut in production quotas of 1mb/day from 1st April, and promising a cut in current over production of 1.5mb/d by the end of March, Algeria have made it known that they are unable to comply.
The current Algerian OPEC quota is 900kb/day but they are producing is 1.2mb/d. According to an announcement on national television yesterday, they would have to increase tax on all goods and services by 3% in order to comply with the latest OPEC directive.

The major economies in the eurozone have released disappointing data on their economic performance in 2003. According to The Financial Times, the German Federal Statistics Office has announced that German GDP decreased during the year by 0.1% compared with 2002. Although the German economy had been forecast to grow between 1.5-2% during 2003, the Bundesbank has reportedly advised it expects growth to be closer to 1.5%. This week, it was also revealed that the French economy grew by a disappointing 0.2% in 2003, while Italy's GDP increased by a weak 0.4% - the same rate of growth as in 2002.

The Chinese International Business Daily reported China's crude imports jumped to 10.3 million tonnes (2.5 million barrels per day) in January, up 10 percent from December and 23.1 percent year-on-year.
Inventories are up, at 8-10% above December's figures, and refinery throughputs were also higher, indicating robust sales.
The State Council Development and Research Centre, has forecast China's crude imports will average a record 96 million tonnes (1.97 million bpd) in 2004.

The US Department of Agriculture has not altered its 2003/04 forecast for Chinese soybean imports in its latest World Oilseed Report, maintaining its forecast of 23 Mt (up from 21.4 Mt in 02/03). This is despite recent speculation that the outbreak of bird flu could reduce demand for soybean imports into China. In the USDA's World Grain Report, the most significant revision is arguably the upward revision to US corn exports for 2003/04. The new projected total is 51 Mt (up 1 Mt from January's forecast and up 9.8 Mt in 02/03), making it the highest export total for 5 years.

Venezuela's state oil company PDVSA is to partially shut down its 940,000b/d Paraguana refining complex for major maintenance work in March. The work will continue throughout March and April.
Paraguana refinery complex accounts for 72% of Venezuela's refining capacity.
In the light of recent new regulations in the US banning the use of MTBE in many States, there is likely to be increased demand for imported gasoline and blending stocks to cover the Venezuelan outage.

The Korea Energy Economics Institute (KEEI) predicts a 6.6%-increase in South Korean coal imports in 2004, assuming a 5%-rise in energy demand this year. The KEEI's Mid-term Energy Outlook anticipates solid growth in coal consumption, forecasting an annual average growth rate between 2003-08 of 5.8% as a result of increasing demand from power plants.