News archive June 2005

Business sentiment in the eurozone improved for the first time in nine months in June, the Financial Times reports. The more positive mood recorded in the European Commission's survey has been attributed to the weakened euro, which is expected to increase the competitiveness of eurozone exports. This has helped offset concerns regarding higher oil prices and the political uncertainty following the Dutch and French referenda on the proposed EU constitution.

According to McCloskey, the vessel queue at Dalrymple Bay has risen to 21 - up from 13 last week - partly as a result of last week's derailment. Nonetheless, this compares favourably with the levels seen in March when the vessel queue reportedly totalled over 50. This week, SSY's Australian coal port congestion index moved up to 10.3 days from 8.7 days.

US oil stocks grew last week, with crude oil inventories up 1.1m bbl at 328.5m bbl, the latest data from the US Department of Energy
showed. US crude oil imports climbed 0.8m b/d to 11mb/d, the second highest weekly average ever, according to the DOE. A rise in refinery
runs to 96.3% of capacity from 94.8% the week before, helped boost distillate stocks. Gasoline inventories were up 0.3m bbl at 216.2m bbl
and gasoline production averaged over 9.1 million barrels per day, the second highest weekly average ever. Although gasoline imports were
down 113kb/d they remained above 1mb/d. Distillate stocks rose 1.7m bbl to 113.2m bbl. Meanwhile, US GDP grew at an annual rate of 3.8% in Q105 - higher than market forecasts of 3.1% - due to strong exports and home-building.

Colombian coal exports in the first five months of the year reached 22.6 Mt, marking a year-on-year rise of 2.5 Mt, according to McCloskey. Despite indicating significant YOY growth, the annualised export total for 2005 currently falls around 6-9 Mt short of market expectations. This is due to a number of factors including mining difficulties, port loading problems and the interruption to trucking at the Colombia-Venezuela border earlier this year. Exports to the US recorded the biggest gains, rising from 4.5 Mt in Jan-May 2004 to 7.5 Mt in the first five months of this year.

Oil prices hit a new record high above $60/bbl Monday on concerns that refiners will struggle to meet demand in Q404 and on worries about oil policy under Iran's new conservative president, who promised to pursue the country's nuclear programme. US oil prices traded up to $60.64/bbl and Brent at $59.21/bbl. The continued strength of global oil demand in the face of higher oil costs also helped boost energy futures values. While high prices are eroding some strength from the world economy, the overall growth picture remains solid, central bankers meeting in Switzerland said at the weekend, reports Reuters.

According to Australian media sources, a derailment on the line to Dalrymple Bay and Hay Point will delay coal deliveries to the ports for a few days. The Australian newspaper reports that the track is the main route to the ports. The port operator at Dalrymple Bay anticipates some short-term supply disruption. It is unclear if shipments will be affected.

South Korea’s crude imports rose 3.2% year-on-year in May to 2.21mb/d, largely due to a 50% rise in imports from the UAE to 467kb/d, as refiners sought crude streams with high middle distillate yields Petroleum Intelligence Weekly reports. Saudia Arabia remained the top supplier of 688kb/d. Imports for the first five months of this year averaged 2.29mb/d, up 4.4% on a year earlier.

Sentiment in Japan's business community remains divided on the country's growth prospects, the Financial Times reports. According to a Ministry of Finance and Cabinet Office survey, large Japanese companies were positive about the country's economic performance in the 2h05 while smaller firms still expressed pessimism. Earlier this week, trade data showed that in May export volumes fell for the fourth time in five months. However, domestic demand appears to be strengthening, indicating that the economy is becoming less reliant on exports. Last month, the OECD lowered its GDP forecast for Japanese GDP growth in 2005 to just 1.5% compared with its previous forecast of 2.1% made last year.

China’s first strategic petroleum reserve base will begin storing oil by the end of this year, state television reported Thursday citing a senior industry official, reports Dow Jones. The construction of storage facilities in the coastal city of Zhenhai, which includes 16 oil tanks, is expected to be completed by the end of September, Wang Mingji, vice chairman Sinopec told China Central Television. The 16 tanks will be put into use at the end of this year and will be able to hold a 14-day reserve, the report said.

The vessel queue and berthing times at Newcastle rose last week as coal exports continued to run below the port's capacity, McCloskey reports. Average waiting times for berthing increased to 5.5 days last week compared with 4.1 days the week before. This contrasts with the situation at the end of May, when the vessel queue was said to be negligible. Port throughput in the year to last week was carried out at annualised rate of 80.29 Mt -the same pace as last year, but still well below the port operator's annual target of 84 Mt.

Several provinces in India are experiencing "severe power shortages", Platts reports. Electricity demand has risen as a result of high temperatures. The situation has been exacerbated further by dwindling coal supplies at many of the country's coal-fired power stations. According to Platts, India's power ministry has reported that 22 of 75 coal-fired plants had "critical" coal stockpile levels, with six having less than four days of stocks. In 2004, India imported 16.2 Mt of steam coal to meet its energy needs with the majority being sourced from Indonesia.

According to the latest data from the International Iron & Steel Institute, China produced a record 29.7 Mt of steel in May. This monthly total is up a massive 37.5% year-on-year, and is 1.6 Mt higher than April’s total. World steel output climbed to 95.4 Mt in May, representing YOY growth of some 10.3%.

Steel output in Japan reached 10.0 Mt in May - the highest monthly total since the 1970s and up 4.3% YOY. In contrast, EU-25 and US production experienced YOY declines, falling 4.8% to 16.2 Mt and 2.8% to 8.1 Mt respectively.

China's oil product imports in May were down 42% year-on-year and 24% month-on-month at 466kb/d, according to the latest Chinese Customs data. A slump in diesel imports -- down 90% year on year at 7kb/d - due to domestic price inefficiencies with importers unable to profitably sell into the price-controlled market, accounted for much of the fall. Fuel oil imports also dipped, down 42% at 386k b/d while there was a 13% drop in kerosene imports.

Consol’s Buchanan mine in Virginia is operational once again following its closure in February. According to a company statement, ongoing repair work over the next few days is required to bring the coking coal mine up to full output levels. Buchanan’s annual output capacity is 4.4 Mtpa.

Coking coal exports from the US fell in April as a result of higher rail rates from April 1 and the closure of Consol’s Buchanan mine, McCloskey reports. April coking coal exports were 2.5 Mt, down 0.4 Mt year-on-year. Exports to Japan were most affected, falling from 694,998 tonnes in April last year to 172,402 tonnes this year.

OPEC has revised downwards its 2005 world oil demand estimate by 20kb/d to 83.9mb/d, projecting a growth rate of 2.2% or 1.8mb/d, the
group's monthly report said, reports Reuters. The revision was due to slightly lower-than-expected growth in two OECD regions - North America and Western Europe - as well as downward revisions to
projections for Latin America and the Middle East. However, the cartel raised its forecast for the call on its own crude in Q305 by 200kb/d to 29.1mb/d and by 100kb/d to 30.6mb/d in Q4. OPEC production in May, including Iraq, was over 30mb/d, a 97kb/d increase from the previous
month.

At its meeting today OPEC raised its official output by 0.5mb/d to 27.5mb/d (excluding Iraq). In May of this year OPEC 10 output was estimated at 27.51 mb/d and in addition, Iraq produced 1.75mb/d. OPEC stated today that it would be prepared to raise the quota by the same amount from July should prices remain high. The two-step plan could
take OPEC’s official production to its highest level since the quota system began in 1987. Despite the pledge to raise crude output, oil prices moved into firmer territory today on the back of a projected stock draw in US crude inventories.

Industrial production in China in May rose 16.6% year-on-year, beating market expectations, the Financial Times reports. Government reports also indicated higher retail sales and exports in May. This positive picture of the Chinese economy at a time of falling freight rates supports the view that Chinese steel mills are currently drawing down iron ore stocks.

The US Department of Agriculture predicts that China will import 27 Mt of soyabeans in 2005/06 (Oct-Sep) compared with 22.8 Mt in the current trade year. The USDA anticipates a substantial increase in Chinese demand as a result of the boost to food and animal feed use from strong economic growth. Consequently, world soya imports (of both soyabean and soya meal) are projected to rise from 106.8 Mt in 04/05 to 112.4 Mt in 05/06. Brazil is expected to benefit the most from the projected increase in seaborne trade. The USDA soya export forecast for Brazil in 05/06 is 37.2 Mt - up 2.8 Mt on this year. Soyabean production in Brazil is forecast to rebound to 62.0 Mt in 05/06 from 53.0 Mt this year.

Coal exports from Colombia in the first four months of the year reached 17.71 Mt - up 1.65 Mt on the same period last year, McCloskey reports. The rate of export growth has slowed this year though; in the first four months of 2004 exports were up 3 Mt year-on-year. Some of the slower growth has been attributed to poor weather affecting mine production and port loading.

The Korea Energy Economics Institute (KEEI) expects higher oil demand in South Korea in ’05 as it has revised its demand forecast to growth of 2% to 2.1mb/d, as pricing differentials in the transport sector has spurred energy demand, reports Petroleum Intelligence Weekly. KEEI expects gasoline demand to grow 3.5% to 165kb/d having contracted by 3.7% in 2004. However, gasoil consumption is expected to fall 2.1% to 388kb/d due to a hike on diesel prices from Jul 1 while gasoline prices are left unchanged.

China’s apparent oil demand fell 2.8% or 180k b/d yr-on-yr in April, the latest data from the IEA showed, and for a second month in a row, the agency trimmed China’s oil demand growth, this time by 10kb/d to 460kb/d. The IEA, though, left its global oil demand projection for ’05 unchanged at 84.3m b/d, due to strength in North America and the OECD Pacific which should offset slower demand in China and Europe. The agency has raised Q3/Q4 global demand projections by 200kb/d on expected OECD Pacific demand and a possible rebound in Chinese demand. World oil supply in May rose 260kb/d to 84.6m b/d.

OPEC is expected to maintain actual oil production of over 30mb/d after it meets next week in an attempt to stabilise oil prices and may need to raise output in Q305 as demand rises later in the year, according to the group’s president, reports Platts. "It looks like everybody is supporting continuing with our actual production, which
is over 30m b/d," Sheikh Ahmed Fahed al-Sabah said. Although the OPEC-10’s official quota is 27.5mb/d, OPEC’s acting secretary general,
Adnan Shihab-Eldin said the group is pumping at 28m b/d. The cartel may lift that current ceiling by 500k b/d to reflect the "overproduction" when it meets in Vienna next week, the president said.

Chinese iron ore imports in May totalled 22.5 Mt, according to the latest customs data. Although this represents a fall of 1.76 Mt on the previous month, they were up 9.28 Mt year-on-year. Meanwhile, May coal imports reached a record 2.36 Mt - up 0.38 Mt on April and up 1.17 Mt YOY. Chinese soyabean imports continued at a brisk pace during May, hitting 2.04 Mt, compared with 1.90 Mt in April and 0.84 Mt in May 2004.

The price of Chinese rolled steel will rebound in late June, according to the deputy secretary-general of the China Iron & Steel Association, the People's Daily reports. The newspaper also quotes Chen Kexin from the Zhongshan logistics information centre, who argues that the price of domestic rolled steel will probably climb in the long run, but may continue to decline during the rest of this year. Mr Chen argues that robust growth both in China and the rest of the world will maintain high demand for rolled steel over the long run and suggested that Chinese steel mills focus on making high value steel products in the future.