News archive June 2004

The Indian economy grew at 8.2% in the 1q04 relative to the same period last year, providing evidence that the recent upswing is set to continue. GDP growth in the March 2003-March 2004 fiscal year also grew by 8.2%, which, according to the BBC, is the highest growth rate in India for 15 years. The BBC added that manufacturing growth was up 7.6% YOY and that analysts anticipated growth in the present fiscal year to be driven by the manufacturing sector. Although the 1q04 growth figure was lower than previous forecasts of 10.4% for the period, the BBC reports claims that expectations are nonetheless bullish, reflecting buoyant levels of agricultural output (agriculture reportedly accounts for 25% of Indian GDP).

US consumer spending appears to have been boosted by an improved labour market, according to data from the US Bureau of Economic Analysis. The Financial Times reports that wages and salaries in May rose by 0.7% for only the second occasion in four years. Although inflation (as measured by the personal consumption price index) increased by 0.5% in May, consumer spending went up by 1% - the fastest growth since October 2001.

According to reports received today, a combination of lower oil prices and a stronger yen exchange rate with the US Dollar is causing some Japanese oil companies to increase imports of crude, and reduce imports of clean products. As refinery margins become more favourable the intention is to feed increasing demand for clean products, particularly gasoline in Japan, and demand for exports into China from increased refinery throughputs.
In the short term this is likely to increase demand for VLCC's loading from the MEG, and for clean Product Carriers loading Japan for discharge in China.

According to the latest Chinese Customs figures, imports of diesel in May totalled over 300,000 tonnes - a 67% increase from April and the highest total since 1999. This was reportedly due to increased demand for portable generators to combat electricity shortages. Low stocks of coal, which at end-April were down to about eight days (the lowest for 20 years), have triggered the demand for generators. This indicates sustained robust demand for diesel in the short to medium term, putting upward pressure on product carrier rates in the Far East.

The dry bulk trade received a welcome boost with the news that China has lifted its ban it imposed on Brazilian soyabeans following alleged contamination with the fungicide carboxin. According to Bloomberg, China had banned soyabeans from 23 trading companies, which handled around 90% of Brazilian soyabean exports. The Chinese news agency Xinhua commented that the trade between the two countries is expected to "resume its smooth development."

The hand-over of power today in Iraq, two days earlier than scheduled, combined with a return to full production in the Norwegian sector of the North Sea, has caused oil prices in London and New York to drop to their lowest levels for 2 months. The immediate reaction from the markets to the news in Iraq was one of relief, but fears of increased sabotage in the early days of the new administration will cause Iraqi oil supply to be viewed as fragile in the short term.

The latest customs data from China show the first year-on-year decline in dry bulk imports since December 2002. Combined imports of grain, coal, iron ore and steel products in May were down 1.08 Mt on the previous year, confirming a dip in volumes. However, with more positive news regarding the resumption of soyabean imports from Brazil emerging in the past week, May's dry bulk imports of 18.8 Mt demonstrate the underlying strength of the country's import demand.

Japan's consumer prices in May fell by a seasonally adjusted 0.2% from the previous month - news which is likely to keep interest rates near 0% in the short term, Bloomberg reports. However, the head of the IMF, Rodrigo de Rato, has praised the economic reforms undertaken by the Japanese government in the last few months. According to press reports, Mr de Rato argued that while deflationary pressures needed to be rooted out, Japan's economic recovery was accelerating. Japan's GDP grew at an annual rate of 6.1% in the 1q04.

The Norwegian Government today imposed an immediate settlement ending the week old strike by off-shore oil workers. The strike had initially cut Norwegian oil production (normally 3mb/d), by 0.372mb/d which was escalated to 0.45mb/d in mid week. The unions were threatening to further increase the production cut to over 0.7mb/d at the weekend if the dispute over pay and pensions had not been resolved. Much of the production is expected to have resumed over the coming weekend.

The planned Phase 5 expansion of Richards Bay Coal Terminal is only waiting for the rail operators to pledge to improve the rail infrastructure between the port and the Mpumalanga coalfields before work can begin at the port, the South African newspaper Business Day reports today. The rail operator Spoornet has faced criticism over the quality of the service to RBCT in the year to date. According to the South African Coal Report, 25.6 Mt of coal were exported from the RBCT in the YTD, compared with 28.0 Mt in the same period last year. The RBCT Phase 5 expansion aims to boost export capacity from a current target level of 72 Mtpa to 86 Mtpa by 2007/08.

Imports of oil by Japanese utilities have been markedly reduced since February with the gradual return to operation of almost all the nuclear power stations. Electricity generation has now mainly returned to the nuclear sector and consequently imports of fuel and crude oil by the utilities have reduced by 66% and 80% respectively.

Despite efforts by the Chinese government to cool investment in several industrial sectors including aluminium, China remained at the forefront of world aluminium production in May. International Aluminium Institute statistics show that China produced a record 543,000 tonnes during the month - up a massive 25% year-on-year and almost 5% up on April 2004. In the first five months of 2004, China accounted for 21.4% of world output compared with 18.7% in the same period last year. World output reached 2.46 Mt in May.

According to the latest US Department of Energy weekly figures, crude inventories rose last week by 2.5mb to reach 305.4mb, the highest level since August 2002. Pressure on crude oil prices has eased also due to reports of resumed pumping by Iraq on the northern pipeline from Kirkuk to Ceyhan, which news outweighed reports of a step-up in industrial action in the Norwegian sector of the North Sea. Increased strike action will take the production cut from 0.373mb/d up to 0.45mb/d from tonight. Reports indicate that unless agreement is reached with management by the weekend, cuts may be increased to 0.71mb/d, out of a total of 3mb/d of Norwegian production.

China has lifted its ban it imposed on Brazilian soyabeans following alleged contamination with the fungicide carboxin. According to Bloomberg, China had banned soyabeans from 23 trading companies which handled around 90% of Brazilian soyabean exports. The Chinese news agency Xinhua commented that the trade between the two countries is expected to "resume its smooth development."

According to the latest Chinese Customs figures, imports of diesel in May were over 300,000 tonnes, a 67% increase from April and the highest since 1999. This was reportedly due to increased demand for portable generators to combat electricity shortages. Low stocks of coal, which at end April were down to about 8 days, the lowest for 20 years have triggered the demand for generators. This indicates sustained robust demand for diesel in the short to medium term, putting upward pressure on product carrier rates in the Far East.

Chinese buyers have rejected around 0.5 Mt of Indian iron ore allegedly for containing boulders, mud and sand, Metal Bulletin reports. Three Indian exporters have been affected by the move. It is thought that larger exporters have not been hit and are expected to export iron ore once again after the monsoon season in September.

Latest data from the International Iron & Steel Institute show that world crude steel production in May totalled 85.6 Mt, up 6% year-on-year and a rise of nearly 2 Mt over the previous month. At 21.1 Mt, China recorded its second highest monthly total ever, which was up by 13% year-on-year. EU output grew by 3% to 14.7 Mt, while US output was up by 7% to 8.1 Mt.

More good economic news emerged from the US. The country's industrial production in May registered the greatest increase since 1998, the Financial Times reported. Output in May year-on-year rose 6.3% and was up 1.1% on the previous month. According to the Federal Reserve's so-called "Beige Book," economic activity in the country grew in April and May, while consumer prices rose modestly.

In China, car sales in May fell 19% on the previous month to 177,500, according to data released by the China Association of Automobile Manufacturers. The BBC commented that the lower sales were caused to some extent by the tightened credit terms introduced by the Chinese government as part of its effort to prevent some areas of the economy from overheating. While a month-on-month comparison shows a decline, May's sales are still up 21% year-on-year, however.

Repairs to the smaller of the 2 pipelines supplying the export terminals of Basrah and Khor al-Amaya have been completed. According to estimates from State Oil Marketing Organisation (SOMO), exports will initially be limited to 1mb/d. Loading has already commenced at both ports, with an Aframax tanker at Khor al-Amaya and a VLCC at Basrah. Repairs to the second and larger pipeline are expected to be complete within this week. Prior to the attack Iraq had been exporting crude oil at about 1.6mb/d with the intention of achieving 2mb/d by the 30th June hand-over.

A strike by Norwegian oilfield workers in the North Sea, causing a shut in of production, and the partial shutdown of the largest refinery in the US, for repairs, combined with the outage of Iraqi oil supply, have failed to move prices significantly. Despite the bullish news traders seem reluctant to return to the market having largely liquidated their long positions earlier in the month.
Reports from Iraq indicate repairs to pipelines supplying the Basrah export terminal may be completed by the middle or end of next week.

Latest data from the International Iron & Steel Institute show that world crude steel production in May totalled 85.6 Mt, up 6% yr-on-yr and a rise of nearly 2 Mt over the previous month. At 21.1 Mt, China recorded its second highest ever monthly total, which was up by 13% yr-on-yr. EU output grew by 3% to 14..7 Mt while US output was up by 7% to 8.1 Mt.

US industrial production in May registered the greatest increase since 1998, the Financial Times reports. Output in May year-on-year rose 6 .3% and was up 1.1% on the previous month. According to the Federal Reserve's so-called "Beige Book," economic activity in the country grew in April and May, while consumer prices rose modestly.

The second attack in two days on the pipeline supplying Basrah Oil Terminal, has brought Iraqi exports to a complete halt, the Ceyhan-Kirkuk pipeline having been rendered inoperable by sabotage last week. Reports indicate that the smaller of the two pipelines to Basrah could be repaired by tomorrow, however repairs to the larger one may take several weeks. In the face of these most recent attacks and further hostage taking in Saudi Arabia, the promise of increased supplies from OPEC, particularly Saudi Arabia, has been sufficient to cause oil prices to move only marginally higher.

China's car sales in May fell 19% on the previous month to 177,500, according to data released by the China Association of Automobile Manufacturers. The BBC commented that the lower sales were caused to some extent by the tightened credit terms introduced by the Chinese government as part of its effort to prevent some areas of the economy from overheating. While a month-on-month comparison shows a decline, May's sales are still up 21% year-on-year, however.

According to the latest weekly figures from the US Department of Energy, crude oil stocks increased by 800k/b to 302.9 m/bbls over the course of last week, significantly below market expectations. Gasoline stocks fell by 500k/bbls to reach 205.9m/bbls, when analysts had expected an increase in stocks. This combined with an increase in sabotage incidences against oil infrastructure in Iraq has caused oil prices to move higher.

Iraq's southern oil exports have again been disrupted after an explosion last night on the pipeline feeding Basrah Oil Terminal, Iraq's largest oil export terminal. According to reports from the terminal harbour master, pumping has been reduced by about 60%, giving a flow of about 30,000 bbls/hr. The US adviser to the Iraqi Oil Minister has commented that compared to the last few months 'sabotage is at about the same high level and will probably get worse in the immediate future as we move towards the handover'

The US Department of Agriculture has revised its projections for world wheat trade in 2004/05 (July/June year) up to 102.6 Mt (1 Mt higher than its forecast last month). Moreover, the USDA anticipates that the EU-25 will export 15 Mt of wheat in 04/05 - up 1 Mt from last month's forecast and 5.5 Mt higher than the estimate for 2003/04. The expected resurgence in EU exports will create more competition for major exporters in markets such as the Mediterranean in 04/05.