News archive January 2004

The first forecast of the year from the International Grains Council predicts that world wheat imports in 2003-04 (July-June year) will total 98 Mt. This is up 2 Mt on last November's forecast, but down 6 Mt from 2002-03's figure of 104 Mt. The main alteration to the IGC's last prediction made in November is China's projected imports for 2003/04, which have been revised upwards from 1 Mt to 2.5 Mt, dwarfing last year's imported 0.4 Mt.

The IGC's coarse grain import forecast for 2003/04 now stands at 106 Mt, the same as the estimated figure for last year. The Council expects an increase in coarse grain imports into Europe - from 6.1 Mt in 2002/03 up to 9.9 Mt in 2003/04, cancelling out a decline in imports into Asia-Pacific and North America.

In its latest weekly publication, the Economist magazine has raised its projection for China's GDP growth for 2004 from 7.7% (when assessed in October) to 8.5%. Even though the rate of expansion is not expected to reach 2003 levels, the Chinese economy is likely to be the fastest growing this year.
Chinese GDP was estimated at 9.2% for 2003. Industrial production for the year was at about 18% up on 2002, while consumer prices were up by 3.2% in 2003, compared to 2002.

Japan exported a total of 34.2 Mt of iron and steel products in 2003 -- down 5.2% on 2002, preliminary data from the country's Finance Ministry show. The year finished strongly though: December's figures indicate an upswing in exports -- up 5.7% on December 2002 and up 28.7% month-on-month, according to the Tex Report.

Japanese industrial output in the 4q03 grew 3.6%, the highest rate for seven years, the Financial Times reports. Fears had circulated that the strengthening yen would weaken export demand. Nonetheless, flat consumer spending and low product inventories continue to give some cause for concern.

The US Dept of Energy has warned that the winter weather currently affecting the US Mid-West and North East could become more severe, with some weather forecasters predicting the coldest temperatures years. In this week's report from the Dept of Energy, questions are raised as to whether heating fuel inventories, particularly for distillate fuel oil (used for both heating oil and diesel fuel) and propane will remain at adequate levels during this period. As a result, consumer prices are likely to increase and more trans-Atlantic trading opportunities could arise. US commercial crude oil stocks declined sharply last week, while gasoline, fuel oil and propane inventories also fell.

US oil stocks are becoming a key issue for OPEC in deciding the level of its output quotas, according to industry reports today. OPEC's next scheduled meeting is on February 10 and the group has indicated that it may leave its target unchanged (at 24.5mb/d) rather than cut output on account of the low US commercial inventories. (Actual OPEC 10 production is currently estimated at about 25.6mb/d.) American crude and fuel stocks are currently being drawn down further, on account of severe winter weather hitting the US North East and a surge in heating oil demand.

The cull of poultry following the recent outbreak of avian flu in the Asia-Pacific region has been one of the factors contributing to depressed soya futures prices at the Chicago Board of Trade, according to market traders. As a result of the culling, fears have spread that demand in the region for soymeal as poultry feed may soften. However, yesterday's CBOT Closing Market Report mentioned other possible factors behind the lower soybean price, such as hedge-related selling and the failure of the US Department of Agriculture to ban meat and bone meal in animal feed as anticipated.

Some steel plants in China have been forced to slow production, according to reports published by Platts. The over-stretched internal transport network has reportedly been unable to forward coke from coke plants, creating shortages at steel mills.

Higher US consumer confidence should drive up oil demand in 2004 as business conditions improve. This month American consumer confidence has risen to the highest level since July 2002. The US economy, meanwhile is forecast to expand by 5.5% on average this year. The International Energy Agency projects that US oil demand will rise by about 1.3% or 300k b/d in 2004. Preliminary data indicates that US crude imports rose by about 7% in 2003 to an average of 9.5 mb/d and product imports were up by 10% to an average of 2.6mb/d.

China exported 7.25 Mt of coal in 2003 in December, bringing the calendar year total to 93 Mt, according to a survey of Chinese export agencies for McCloskey's Coal Report. December's total exceeded initial estimates of 6.8 Mt, yet a repeat of these levels in 2004 appears unlikely given the Chinese authorities' expectation of 80 Mt of coal exports this year.

As export licences for only 30 Mt have been issued so far, export agencies have focused on honouring term contracts at the expense of spot tenders. Although Shenhua and China Coal have requested more licences, the government will not respond for 2-3 months, implying little Chinese coal export involvement in the spot market until a decision has been made.

According to industry reports, the Kirkuk-Ceyhan pipeline is almost ready to resume exports. Large numbers of security personnel are now in place and repairs to the pipeline are almost complete. The re-introduction of the pipeline could increase Iraqi exports by up to 320kb/day, and according to the reports, exports could begin to flow in a matter of days.
Any increase in cargo availability in the Mediterranean will bring upward pressure to already firm rates.

An annual coal export quota is to be introduced this year in China to ensure that the country's future domestic coal requirements are met, Argus Coal reportedly claims. Chinese authorities reached their decision following a spate of power shortages affecting 31 provinces. The size of the quota will be announced before 31 October of each year, then applications from producers will be accepted for the following year between 1-15 November. Once the National Development and Reform Commission deems sufficient supplies have been secured, it will issue export licences.

According to International Energy Agency (IEA) figures, overall FSU crude and products exports for 4Q03 are estimated at 6.8mb/d, 900kb/d higher than for the same period in 2002. Loading schedules also indicate that exports in 1Q04 will be even higher, with loadings from Primorsk accounting for some of this increase. The Baltic Pipeline System (BPS) which feeds Primorsk is again being expanded from the recently achieved 600kb/d to 830kb/d in March 2004.

The OECD's chief economist, Jean-Philippe Cotis, has warned that the eurozone's export-led economic is "distinctly weak," according to the BBC. Mr Cotis was particularly wary of any further appreciation of the euro, adding that the effects of the strong euro could only be gauged in spring 2004. Despite these concerns, the OECD raised its forecast for eurozone economic growth to an annual rate of 2-2.5%. The organisation's annualised growth rate forecasts for Japan and the US were 4% and 5.5% respectively.

According to the latest US Department of Energy figures, crude oil inventories have risen over the last week by 1.2 million barrels. Stocks have moved up from their 28 year low of 264 million barrels, to 265.2 million barrels. Imports rose over the week by 6.4% to average 9.8mb/d, up from and average of 9.4mb/d during the previous week.

The Indian government is considering a limit on iron ore exports to China, according to Indian financial daily The Economic Times. It is claimed that the proposed measure from India's Commerce Ministry is a response to China's warning that Indian steel exports there should be limited. China also announced last week that tariffs of up to 55% on imports of cold-rolled steel from five countries (Kazakhstan, Russia, South Korea, Taiwan and the Ukraine) would be imposed.

The article in The Economic Times claims quantitative restrictions on iron ore exports would give India "greater bargaining powers" in future trade negotiations. In 2003, India exported 45 Mt of iron ore, of which 30 Mt were reportedly destined for China.

The Chinese economy grew by 9.1% during 2003, the Chinese National Bureau of Statistics has announced, 4q03 growth increasing at a rate of 9.9%. The Financial Times has quoted some independent analysts' views that other indicators, such as electricity output and industrial production, suggest that actual GDP growth was in the region of 11-12%. In the twelve months to November 2003, industrial production increased by 17.9%.

A massive explosion at a LNG plant in Skikda, has brought a halt to all shipping activities, disrupting exports of crude, products and LNG. Skikda is Algeria's second largest crude oil export terminal after Arzew.
According to the US Department of Energy, in the first nine months of 2003, Algeria exported 37 billion cbft of gas to the US, making it the third largest supplier to the US.
With US crude inventory levels currently at their lowest levels for over 25 years, and cold weather boosting demand for heating oil and LNG, prices are under pressure.

World crude steel production in 2003 reached a record 962.5 Mt -- up 6.6% over 2002, according to the International Iron & Steel Institute's latest data. This growth was driven to a large extent by China -- output there increased by 21.2% over 2002. In contrast, the next five biggest steel producers saw their steel output grow by a more modest 1.5% on average. As China already produces 20 Mt per month, and as more capacity is due on stream, this could push the world steel production over the 1 billion tonnes mark in 2004.

According to an industry report, China's crude oil demand rose to over 2.2mb/d in December. This is the second highest monthly figure for 2003 after September's average of2.39mb/d. Demand is being driven by huge infrastructure projects, a massive increase in domestic car ownership, and by the power supply industry in keeping pace with the escalating demand for electricity.
The International Energy Agency (IEA) is forecasting that Chinese demand in 2004 will reach 5.46mb/d. As the growth will largely be met by crude oil imports this will add further upward pressure on VLCC and Suezmax rates in the coming year.

Figures from the US Department of Commerce give cause for optimism over the strength and sustainability of the country's economic recovery. Retail sales in December rose for the second successive month, up 0.5% on November and up 6.5% on the previous year. This follows news that the US trade deficit fell to its lowest level for 13 years, the BBC reports. Unemployment claims also dropped, and inflation stayed low.

OPEC production rose by 195K b/d in December to reach 27.9 mb/d, its highest level since March 2001 according to the International Energy Agency's latest report. The Agency also estimated that global oil demand grew by almost 2% in 2003 and it warned of the very low crude OECD inventories. For 2004 the IEA is expecting demand growth of 1.2mb/d led by non-OECD demand, particularly from China, which should further raise tonne mile demand this year for the crude carriers.

According to US Department of Energy figures, crude inventories fell last week by 5million barrels to 264million barrels, their lowest level since January 1975, when US oil consumption was considerably lower than today. Crude stocks fell as imports slipped from 9.8 to 9.2mb/day. There was a rise in stock draws for distillate refining as demand for heating oil increased.
Crude stocks are now 6million bbls below the Lower Operational Inventory level, which potentially should increase demand for imports and tonnage.

The German economy shrank by 0.1% during 2003 -- the weakest yearly performance since 1993, latest data show. However, the data suggest that performance was less weak in the 4q03, according to the Financial Times. This month's Composite Leading Indicators (CLIs) from the OECD, which aim to uncover early signs of economic expansion or slowdown, suggest that better performance for the eurozone lies ahead, particularly for Germany and France.

In the first of the year's deals, the Europe-based steel manufacturer Arcelor has made an agreement with the Brazilian mining company CVRD to pay 18.6% more in the 2004 calendar year for its iron ore. Arcelor will pay 37.90 US cents per metric ton Fe unit for Carajas fines (CJF). CVRD has announced it will supply over 22 Mt of iron ore to Arcelor in 2004. According to Deutsche Bank, the settlement represents the highest single-year percentage increase since 1979.

OPEC members, including Iraq, produced an average of 27.75mb/d in December, an increase of 230,000b/d over November. Their self-imposed quota as from the 1st November is 24.5mb/d. According to an industry report released today, the largest increases were from Saudi Arabia, Iran, Nigeria, UAE and Iraq.
Despite current high prices, the increased supply is not outstripping demand and the increasing demand for oil bodes well for freight rates, as more cargoes come to the market and loading opportunities increase