News archive August 2005

The US is to release crude oil from the country’s Strategic Petroleum Reserve as refiners face supply shortages due to Hurricane Katrina, the US Energy Department said Wednesday. News reports suggest at least 3 refiners have requested a loan and that the flow of oil could begin as early as Thursday. The SPR was filled to its target capacity of 700m bbl last week. The US Gulf accounts for about a quarter of US oil production and about 6.5% of domestic demand and at least 1.3m b/d of offshore production is reported to have been shut. Due to the severity of the flooding caused by Katrina, infrastructure problems, particular around New Orleans and the Mississippi River are becoming an increasing concern.

With the latest inventory data from the US Department of Energy Wednesday showing that gasoline stocks were at a 21-month low before the Hurricane hit, much of the focus is on the effect of the Hurricane on the US refining industry, particularly when it is currently being stretched to capacity. The US DOE reported that 9 Gulf Coast refineries were shut as a result of the storm (although some have re-started), with another four reducing production rates. This could support more product imports into the US -- a trend that was well established during the first half of 2005 where a 13% year-on-year increase in refined oil was recorded to an average of 3mb/d (and growth of 20% in Q205). Clean tanker freight rates from the Caribbean and Europe to the US have already bounced due to increased cargo demand from the US while crude rates in the Caribbean are also starting to rise.

The Lower Mississippi has been opened for limited barge and tug traffic, the Associated Press reports. While US grain exports have been temporarily halted, some media reports have played down Hurricane Katrina's long-term impact on grain exports. With corn and soyabean harvests still weeks away, analysts have suggested that if the hurricane had struck in 6-8 weeks time, the impact on those crops would have been more severe. However, grain companies have stated that it is still too early to assess the extent of the damage to facilities and have so far reported only "minor damage" to facilities. Reports from the area of damage to infrastructure and silting of the waterways suggest that disruptions in the short term at least are unavoidable.

The extensive damage caused by Hurricane Katrina has closed the lower section of the Mississippi River. According to US media reports, empty barges have been destroyed while concerns have emerged that the waterway may have been re-channelled in parts. Several days will be needed to determine the precise extent of the damage.

Barges laden with grain exports have been halted while iron ore shipments bound for steel mills along Lake Michigan are reportedly held in New Orleans. Barge traffic along the Mississippi and Ohio Rivers had previously been affected by low water levels.

A reduced number of gasoline cargoes from China is currently leading to softer MR tanker rates for some Pacific trades. Earlier this week China cancelled some of its gasoline exports from Dalian and redirected cargoes to the south of the country to ease domestic shortages. The shortage that was facing Guangdong province since early August has recently spread to the eastern province of Shangdong, according to news reports.

Chinese product exports have surged this year as Beijing holds down domestic retail prices. In light of the high international oil prices, this has prompted traders to export for profit rather than sell domestically at a loss. China exported an average of 0.3mb/d of refined products in the first seven months of this year - an increase of 45% on the same period in 2004.

Chinese product imports, meanwhile, fell by 20% to an average of 0.64mb/d between January and July this year compared with the first seven months of 2004.

To try to ease the shortage of mid-distillates currently being felt in parts of China, Beijing raised retail prices by 6% and gasoline prices by 6.4% in July -- the third such rise this year. This follows the trend in a number of Asian countries to revalue price limits or remove such fixed prices and/or subsidies altogether.

The International Grains Council forecasts the world wheat trade in 2005/06 (July-June) at 108.4 Mt. This is down on last month’s forecast of 109.0 Mt - mainly due to a reduced import projection for China. The new world forecast is still up 0.8 Mt on the estimated 2004/05 total.

Among the exporters, the IGC now predicts EU-25 exports of 15.0 Mt in 05/06 - down 1.0 Mt on last month’s forecast, but up 2.0 Mt year-on-year. Argentinian wheat exports are forecast to fall to 8.0 Mt in 05/06 compared with the July forecast of 9.0 Mt and the 04/05 total of 13.1 Mt. Meanwhile, the IGC’s Russian wheat export forecast has been raised to 9.0 Mt.

According to data from The Federation of Electric Power Companies of Japan (FEPC), ten of the country's major utilities consumed 4.7 Mt of coal in July. This is the highest monthly total since August of last year and is up 8% year-on-year. Statistics from the country's Finance Ministry showed Japan imported 46.2 Mt of steam coal in the 1h05.

The vessel queue at Newcastle to 17 from 10 in the previous week, lifting average waiting time in the process, McCloskey reports. Data from the terminal operator also recorded a week-on-week increase in throughput, equating to 95% of the port's rated capacity. However, the latest SSY Australian Port Congestion Index, which includes delays at seven major coal ports, remains close to 8 days for the fifth consecutive week.

The International Aluminium Institute reports that China produced 667,000 tonnes of aluminium in July -- a monthly record. This represents a year-on-year increase of 20%. However, the Chinese government has ended some tax breaks from August 22 with the aim of reducing aluminium exports. July output in the rest of the world was more modest: some 2.01 Mt were produced -- up 6% YOY. China is the world's largest producer of the metal, producing 24% of the global total in the first seven months of this year.

The latest International Iron & Steel Institute data show a marked contrast between July steel output in China and India on the one hand compared with the other major steel-producing centres on the other. Steel output in the EU-25 fell 9% year-on-year, FSU production dropped 10%, while steel output in the US was down 9%. Japanese and South Korean steel production remained relatively static, both declining 1% YOY. In contrast, Chinese output grew 29% YOY to 29.2 Mt in July while India's production climbed 34% to 3.6 Mt. Consequently, global output was up 4.5% YOY.

Meanwhile, global industrial production in June grew at 3.6% year-on-year -- the fastest rate since January 2005, Macquarie Bank reports. The apparently healthy outlook for the US economy is reinforced by an annual IP growth rate of 3.9% in June (compared with 3.0% in April and 2.7% in May). Strong IP growth was also recorded in India (+11.7% YOY) and China (+16.0%). More modest growth occurred in Japan, however. IP in Japan grew by an annual rate of 0.2% in June, while IP in Western Europe contracted YOY by 0.4%.

Canada was the largest crude oil supplier to the US in June at 1.7m, and so far this year, despite its recent production problems, has consolidated its position as the top crude supplier in 2004, reports
Petroleum Intelligence Weekly. Canada overtook Saudi Arabia in 2004, which had been the major supplier over the previous 6 years. Saudi Arabia slipped behind Mexico as the third highest supplier to the US in June at 1.6m b/d.

Spot coal prices appear to be firming, with further purchases from European utilities also anticipated, according to McCloskey's Coal Report. Recent supply problems in the Powder River Basin have forced some US utilities on to the international market, boosting shipments from Colombia. Atlantic coal prices have also received support from rising freight rates, which have made Australian imports less attractive to European buyers. Platts reports FOB Richards Bay prices pushing over $47/t.

Market reports from the Chicago Board of Trade indicate that US corn exports are exceeding trade expectations. According to US Department of Agriculture data, weekly corn export sales from the US -- the world's largest exporter -- reached 1.6 Mt compared with trade expectations of 0.6-1.0 Mt. Meanwhile, wheat export sales for the week (468,400 tonnes) were in line with expectations.

Ecuador has suspended crude exports after domestic protests cut production, according to news reports. Output at Ecuador’s state oil
company, PetroEcuador, fell 201K b/d to 20K b/d barrels a day, Energy and Mines Minister Ivan Rodriguez said. The protests in Ecuador shut
about 200 oil wells and it will take at least six weeks to return to normal, PetroEcuador said. Ecuador is South America’s fifth largest oil producer and ships over half its production to the US. The US imported an average 290k b/d of Ecuadorian crude in the first 5 months of 2005, a 49% increase on a year ago.

The latest International Iron & Steel Institute data show a marked contrast between July steel output in China and India on the one hand compared with the other major steel-producing centres on the other. Steel output in the EU-25 fell 9% year-on-year, FSU production dropped 10%, while steel output in the US was down 9%. Japanese and South Korean steel production remained relatively static, both declining 1% YOY. In contrast, Chinese output grew 29% YOY to 29.2 Mt in July while India's production climbed 34% to 3.6 Mt. Consequently, global output was up 4.5% YOY.

The latest quarterly report from the World Bank has forecast that the China's economy will grow by 9% in 2005 and by 8% in 2006, Reuters reports. This compares with growth of 9.5% last year. The World Bank commented that investment appeared to be on course to grow at a more sustainable pace, while the managed float of the renminbi might ease fears that the economy was overheating. China's economy grew at an annual rate of 9.5% in the 1h05.

US Gasoline stocks fell 5m bbl to 198.1m bbl, the first time inventories have been below 200m bbl since October ’04, the latest data from the US Department of Energy showed. Recent refinery outages led to utilization rates dipping to 93.5% of capacity from 95% the week before leading a fall in gasoline and distillate production. Gasoline imports were also down by 213kb/d at 973kb/d. Distillate
stocks climbed 1.2mb to 131.1m bbl and while crude stocks rose only marginally by 0.3m bbl to 321.1m bbl, they were 10% higher on a year
ago. Crude imports were down 752kb/d at 10.3mb/d.

in China, the country’s national oil majors assured the public that they would provide continuous supplies of gasoline and gasoil at their retail outlets in Guangzhou, in southern China in a move to meet an acute shortage of oil products in the city, Platts
reported. An official from one of the oil companies attributed the shortage to firmer demand of oil products on rapid industrial growth and lower supplies from refiners due to high crude import prices.

The US Department of Agriculture has revised its forecast for Chinese 2004/05 (Oct-Sep) soyabean imports up to 24.0 Mt, compared with last month’s projection of 23.2 Mt. The increase in Chinese soyabean imports is attributed primarily to rising use of soyameal in animal feed. The 2005/06 Chinese import forecast of 27 Mt remains unchanged.

The USDA made small amendments to its outlook for world soya (bean & meal) exports, lowering its forecast for US soya exports in 2005/06 by 1.5 Mt to 35.5 Mt (-1.1 Mt yr-on-yr), while raising its forecast for Brazilian and Argentinian exports. Brazil is now expected to export 38.3 Mt of soya in 05/06 (+3.8 Mt YOY), and Argentina is forecast to export 29.4 Mt (+2.3 Mt YOY).

Global industrial production in June grew at 3.6% year-on-year -- the fastest rate since January 2005, Macquarie Bank reports. The apparently healthy outlook for the US economy is reinforced by an annual IP growth rate of 3.9% in June (compared with 3.0% in April and 2.7% in May). Strong IP growth was also recorded in India (+11.7% YOY) and China (+16.0%). More modest growth occurred in Japan, however. IP in Japan grew by an annual rate of 0.2% in June, while IP in Western Europe contracted YOY by 0.4%.

The latest economic data from Japan indicate that an economic revival may be under way, the BBC reports. The annual rate of GDP growth in the 2q05 was 1.1% and raises hopes that the country's economy is returning to a period of steady growth in 2005, in contrast to 2004, when the economy contracted between March and September. Other data released showed a fall in unemployment and rises in corporate investment and household consumption.

Preliminary estimates from China's Customs Statistics suggest that the country's iron ore imports from January to July totalled 150 Mt. This implies that July's imports were the second lowest monthly total this year (after February). The dip in iron ore imports coincided with the weakness in the Capesize and Panamax markets.

The International Energy Agency left its forecast for 2005 oil demand growth mostly unchanged at 1.6mb/d in its August monthly report. OECD
demand was revised upward by 80kb/d in ’05 due to unexpectedly strong Japanese demand growth in Q205 and to a reassessment of US oil demand.
However, non-OECD growth was revised down by 60kb/d as a result of weaker Chinese demand. Chinese apparent demand declined by 1.4% in
Q205 and the outlook for 2005 growth overall has been moved down 40kb/d to 320kb/d (4.9%). On the supply side, world oil production rose 250kb/d in July largely due to a 285kb/d increase in OPEC’s crude supply to 29.6mb/d. The IEA, though, cut it’s projection for non-OPEC supply for ’05 by 205kb/d following unscheduled stoppages in Europe and the US and to lower projections for Russian, African production. It upwardly revised its call on OPEC crude for Q405 by 300Kb/d to 29.2mb/d.

Concern that this season's US soyabean crop would be reduced as a result of the harmful Asian rust fungus appear to be diminishing in the face of the latest scientific data. US media sources report that although the rust fungus has been found on some soyabean crops in the southern states of Florida, Georgia, Mississippi, and Alabama, the prime soyabean growing areas of the midwest appear to be unaffected. On Monday, the American Soybean Association reported comments by the US Deputy Agriculture Secretary, Chuck Conner, that "the threat of widespread infestation by the Asian soybean rust fungus is nearly over for this year's crop."

Us crude oil stocks rose 2.8m bbl to 320.8m bbl last week, due to higher oil imports and a marginal fall in refinery throughputs, weekly data from the US Department of Energy showed. Crude oil imports averaged 11.1mb/d, the second highest weekly average ever. Refinery utilization dipped to 95% of capacity compared with 95.8% a week ago.
Distillate stocks rose 2.6m bbl to 129.9m bbl, with a 4.3m bbl increase in heating oil stocks. Gasoline inventories fell 2.1m bbl to 203.1m bbl (4% below year ago levels) despite imports of 1.2mb/d - the
highest weekly average so far in 2005. US gasoline demand has averaged 9.5mb/d over the past 4 weeks, 1.4% higher than in the same period last year.

India imported 4.1 Mt of coal in July, up from 3.8 Mt in June, McCloskey reports. This means that in the first seven months of 2005, India imported 23.2 Mt compared with total imports of 30.0 Mt for the whole of 2004. Indonesia was the largest supplier, providing 1.3 Mt of coal imports in July and 6.5 Mt in the year to date.