News archive September 2005

The International Grains Council has raised its world wheat export forecast for 2005/06 (July-June) to 109.2 Mt - 0.7 Mt higher than the trade estimate for last year. The prospect of a large harvest in Russia prompted the IGC to lift its 05/06 forecast for Russian exports by 1.0 Mt to 10.0 Mt. Meanwhile, the IGC raised its world coarse grain export for 2005/06 to 103.2 Mt - up 1.2 Mt from last year.

The Governor of the Bank of Japan has predicted for the first time that gains in core consumer prices will be maintained beyond the end of the year. Governor Toshihiko Fukui added that he expects the country's economic recovery to be "sustained and lasting." Earlier this month, the IMF raised both its economic growth forecasts for Japan for 2005 and 2006 to 2.0% from its previous forecasts of 0.8% and 1.9% respectively.

According to a US Department of Agriculture survey, US ports, terminals and grain elevators are 46% full, up 9 percentage points during the year. Dow Jones reports that the increase has been attributed to weaker demand from overseas. On Monday (26 September), the Lower Mississippi River re-opened to commercial vessels following a temporary closure due to Hurricane Rita.

Gasoline stocks unexpectedly jumped by 4.4m bbl to 199.8 bbl last week, even though demand rose slightly to 8.84m b/d, the latest data from the US Department of Energy showed. This was a result of increased gasoline imports, with a week-on-week rise of 0.27mb/d, bringing total imports to 1.2m b/d, a 40% increase over the last four weeks. US gasoline output fell by 0.19m b/d. Refinery utilization was down at 86.7% of capacity compared with 90.8% the week before. Distillate inventories fell 0.5m bbl at 133.6m bbl and output dropped 232k b/d to 3.7m b/d. US crude stocks also fell more than expected, dropping 2.4m bbl last week to 305.7m bbl as imports slipped 139k b/d to 9.7m b/d.

A strike has crippled France’s biggest refinery, Total’s Gonfreville plant, and unions have threatened to extend the stoppage to all Total facilities, putting over half of France’s gasoline and heating oil output at risk, reports Reuters. A blockade by French shipping workers has stopped oil tankers from discharging at the Fos-Lavera port that feeds many other refineries. If the strike drags on, refiners will run out of crude oil to process. France is a leading US gasoline supplier.

The US coking coal mine of Buchanan is expected to re-open in November, according to a press release from the mine owner, Consol. An exact date is not provided. Production at the Virginia mine was halted on 16 September due to a damaged skip hoist. The mine has a monthly production capacity of 350,000-400,000 tonnes.

Saudi Arabia is planning to expand its oil production capacity from the current 11m b/d to 12.5m b/d by 2009 to meet growing oil demand, the Saudi Oil Minister Ali al-Nuaimi said, reports AFX. Speaking at the World Petroleum Congress the Minister said Saudi Arabia will continue to maintain spare capacity of at least 1.5 to 2m b/d
Proven oil reserves in Saudi Arabia in 1970 totalled 88 billion and Nuaimi said they are now estimated at 264 billion barrels despite 91 billion barrels having been produced over the 35 years. According to the latest data from the International Energy Agency, Saudi Arabia produced 9.3m b/d of crude in August.

India's Financial Express reports that a delegation from the China Chamber of Commerce of Metals and Chemicals Importers and Exporters (CCCMC) has arrived in the country with the aim of signing long-term iron ore contracts (minimum 3-5 years) with Indian suppliers. The Financial Express adds that as India may soon restrict the amount of iron ore available for export to preserve supplies for its domestic steel industry, the pressure on Chinese buyers to secure longer-term contracts will increase. (around 90% of India's iron ore exports to China were purchased on the spot market). China imported 50.2 Mt of Indian iron ore in 2004 - that amount is expected to increase this year.

Most of the 15 refineries closed ahead of Rita are reporting minimal damage, with several already restarting according to news reports. However, Valero's 255,000 b/d Port Arthur refinery sustained flood damage, with repairs scheduled to take 2-4 weeks, reports USA Today. Citgo's Lake Charles refinery with a capacity of 324,000 b/d also remains closed due to minor damage. As of Sunday, at least 666 oil platforms, which normally produce 1.5 million barrels of oil a day, and 92 drilling rigs in the Gulf of Mexico remained evacuated, the Minerals Management Service reported.

Canada was the top crude supplier to the US with 1.6m b/d in July, while supply from Russia was up by 57% year-on-year, at 324k b/d, reports PIW. July data also showed crude imports were at 10.3m b/d and product imports were at 3.7m b/d, or 600,000 b/d more than the average for 2004, Energy Information Administration data showed.

Hurricane Rita made landfall late Friday on the Texas-Louisiana border but by the time it hit, the severity of the storm had been downgraded to category 3. Preliminary reports suggest minimal damage to oil instillations and terminals, although as LOOP was closed and more than a dozen refineries shut-in, there will be some delay to the restart of normal operations. The US Minerals Management Service said 605 platforms and 87 drilling rigs in the Gulf of Mexico were evacuated as of 21 September, including 83 platforms and 2 rigs to which crews had not returned after Katrina. The Service reported that about 1.4 million b/d, or 91.9%, of oil production and 6.6 bcfd, or 66%, of natural gas production in the gulf were shut in ahead of the latest storm. According to the OGJ, cumulative gulf production lost since August 26, now totals 28.5 million bbl of oil and 131.8 bcf of natural gas, said MMS on Sept. 22.
Product tanker freight rates remain very firm, while the crude sector has also shown gains (see SSY's Weekly Tanker Report).
Meanwhile OPEC has said it will release an additional 2mb/d of supply onto the market as of 1 October for three months. Crude prices failed to react to the news as analysts doubted if such physical supply could be added to the market and whether there was sufficient refinery capacity to process the oil.

With the industry eyeing the hurricane activity in the US Gulf, the threat of a disruption to supply on the other side of the Atlantic is adding further pressure to oil prices. In Nigeria, oil major Shell is preparing to evacuate some workers form the Niger Delta following the civil unrest in the country. U.S. oil firm Chevron shut a second platform on Friday. Militants have threatened to close down oil facilities in the delta unless political demands are met. Nigeria produced 2.46mb/d of crude in August.

Domestic prices for wire rod in China have fallen below $400/tonne for the first time since mid-July. Having produced a record monthly volume of crude steel in August, the decline in prices since the start of last month implies that the country's steel industry is continuing to wrestle with oversupply. The current price of $395/tonne compares with a year-to-date average of $418/tonne.

The first signs of the economic fallout from Hurricane Katrina have emerged with employment data from the US. The Associated Press reports that 214,000 applications for unemployment benefit have been received from those affected by the hurricane. Furthermore, the US Congressional Budget Office expects GDP growth in the 2h05 to be reduced by as much as one percentage point as a result of Katrina. However, the Associated Press adds that many analysts foresee a boost to the economy from reconstruction activities in 2006 to compensate for this half-year's decline.

Data from the International Aluminium Institute show that aluminium output in China rose for a sixth successive month to a record 687,000 tonnes. This means that Chinese production in the January-August period rose 19% year-on-year. In contrast, production in the rest of the world over the same period rose by only 3%, underlining the continued importance of China to the seaborne alumina and bauxite trades.

China's steel mills produced a record 30.5 Mt of crude steel in August, representing a year-on-year rise of 27%, according to the latest statistics from the International Iron and Steel Institute. This compares with global output growth of 6% in August. Strong growth was also in evidence in India during August, with monthly production rising 40% YOY to 3.6 Mt.

In contrast, other traditional steelmaking centres saw YOY falls in production in August: the EU-25 produced 13.2 Mt (-8%), US output was 7.7 Mt (also -8%), the FSU produced 9.3 Mt (-3%), while Japan produced 9.2 Mt (-2%).

In its September oil report published last week OPEC projected 2005 global oil demand to grow by 1.4mb/d to 83.5 mb/d. The Group revised down the Q4 call on crude to 30.3mb/d from 30.5mb/d. OPEC also downgraded US 2H05 supply by 0.25mb/d on the back of damage to USG production following Hurricane Katrina. OPEC is currently meeting in Vienna to discuss the possibility of raising its production ceiling -- possibly by as much as 2mb/d. OPEC is facing pressure form major consuming countries to raise its output even though analysts regard the high oil prices as partly as largely a factor of limited refinery capacity rather than crude supply. OPEC's target output level as of July 1 this year is 28mb/d (excluding Iraq) compared with an estimated output of 27.8mb/d in August . This shortfall is due to under-target production from Indonesia, Iran and Venezuela.

The US coking coal mine of Buchanan has been temporarily closed as a result of an accident involving the mine's hoisting mechanism. According to a press release today from mine owner Consol, the mine, which produces 350,000-400,000 tonnes of coal per month for steel mills in both the US and overseas, is expected to be out of operation for "at least several weeks". The Virginia mine was closed for approximately four months earlier this year following a fire in February.

In a draft of its twice-yearly outlook reports, the International Monetary Fund has raised its forecast for the Japanese economy but has cut GDP growth forecasts for the Europe Big Four next year. The IMF highlighted the vulnerability of higher oil prices to Europe and as such cut Germany's 2006 growth forecast from 1.9% to 1.2%. The UK's growth forecast, meanwhile, has been revised down to 2.2% from 2.6% as previously forecast. Japan's economy is expected to grow by 2% this year and next -- indicating some recovery from the poor economic conditions during much of the 1990's. The US forecast has not been changed since April, forecast at 3.3% for 2006. The full IMF report is due to be published next week.

Fixed asset investment in China rose 28.5% year-on-year in August, indicating continued rapid expansion in power and transportation expenditure, Reuters reports. In the first eight months of the year, investment in coal mining facilities leapt 82% while spending on rail infrastructure rose 39%. Earlier this week, China announced that industrial production increased 16% YOY in August.

China’s crude steel output hit another new record in August, up by 30% year-on-year to 30.5 Mt. That compares with 29.2 Mt in July. Iron ore imports rebounded to 23.1 Mt, a rise of 1.5 Mt over July and the highest level since April. This followed a period of de-stocking which saw a fall in iron ore stockpiles at China's major ports from 33 Mt in early July to 25 Mt in early September, according to some Chinese sources.

Crude oil stocks fell sharply by 6.6m bbl to 308.4m bbl last week, surprising market expectations, with the biggest decline seen in stocks in the US Gulf, the latest data from the US Department of Energy showed. Crude imports dropped 0.4m b/d to 9.1m b/d. US gasoline stocks, though, rose 1.9m bbl last week to 192m bbl as demand slowed, falling 0.4m b/d from the previous week to 8.6m b/d. Gasoline output increased by 0.4m b/d to 8.5m b/d while imports rose by 236k b/d to 1.1m b/d. Refinery utlilization was up only marginally at 87.3% of
capacity compared with 86.8% the week before. Distillate inventories were down 1.1m bbl at 133.3m bbl and output slipped 0.1m b/d to 3.7m
b/d.

Meanwhile, the US DOE has sold 11m bbl of crude from the 30m bbl it has pledged to release from the country’s strategic petroleum reserves. Of the oil sold, 10.8m bbl were of the sweeter crude that
refiners prefer because it is easier to process into gasoline and other products, reported Reuters.

Weekly export sales of US soyabeans (423,000 tonnes) exceeded market expectations, according to a report on the Chicago Board of Trade. Cumulative sales for this season, however, stand at just 13% of the US Department of Agriculture's forecast compared with the 5 year-average of 23% for this time of year. In order to meet the USDA's export sales projection, weekly sales of 495,000 tonnes are required.

According to Metal Bulletin, South Korean steel manufacturer, Posco, has acquired the rights to purchase 10 Mtpa of iron ore for 25 years from mid-2009 from Murchison's Jack Hills project in Australia. In a separate development, a memorandum of understanding has been signed by two Chinese and two Indonesian companies to build an iron ore mine in Sampit, Indonesia, with an initial capacity of 2.5 Mtpa. The moves demonstrate that substantial expansion of iron ore mining capacity outside the leading three mining companies is in progress.

The International Energy Agency revised down oil demand growth for 2005 by 250k b/d to 1.3m b/d as high oil prices and the fallout from Hurricane Katrina weakened demand. Chinese apparent demand growth remained weak in comparison to ’04 as oil pricing issues between refiners and the government over high international prices and
government-set retail prices remained. Chinese oil demand growth for ’05 was revised down 100k b/d to 220k b/d while demand forecasts for Q305 were cut by 190kb/d and by 170k b/d for Q405. Demand growth in other non-OECD Asian countries was revised down 50k b/d for ’05 due to high oil prices and following the impact of severe flooding in India.
OECD demand growth in July was lower-than-expected year-on-year, possibly indicative of high oil prices and also a decline in utility demand due to milder temperatures and interfuel substitution (mainly in Asia), the IEA said. It has revised down OECD demand growth by 60k b/d for ’05.

As for the impact of Katrina on the US, the IEA expects regional oil product demand to be affected in the near-term but offset by fuel needs for rescue/recovery and rebuilding efforts. US oil demand is expected to fall around 200k b/d in Sep vs the pre-Katrina trend but the impact should diminish in coming months.