News archive June 2006

The International Grains Council has raised its forecast for the 2006/07 (July-June) world coarse grain trade by 0.5 Mt to 104.9 Mt. This is mainly the result of greater price competitiveness of corn against wheat as animal feed and would mark an increase of 1.4 Mt on the estimated 2005/06 total. US coarse grain exports are now expected to rise to 58.3 Mt (+3.4 Mt year-on-year), while Argentinian exports are set to total 12.5 Mt (-0.1 Mt), shipments from Australia are forecast to hit 5.9 Mt (+0.5 Mt) and exports from the EU-25 are predicted at 3.9 Mt (unchanged).

The China-US steel trade, an important source of recent Handymax demand may soon face a two-way squeeze in the 2h06. Data from the American Iron and Steel Institute show that the US imported 3.48 Mt of steel imports in May, bringing the year-to-date total to 16.89 Mt, an increase of 32% over the same period last year. Significantly, the chair of the AISI, Louis Schorsch, was quoted in the latest monthly report referring to "dumped and subsidised imports", which could harm "healthy" industries, such as the US steel sector. Such language underlines the potential for fresh restrictions to be placed on steel imports into the country. The potential for restrictions on US imports may be accompanied by reduced steel exports from China, with reports suggesting that the tax rebate on steel exports, currently at 11%, will be reduced by an as yet undecided amount.

US gasoline stocks fell 1m bbl last week to 212.4m bbl, ahead of the Independence day holiday weekend when demand typically peaks, the latest data from the US Department of Energy shows. Demand was up 111k b/d at 9.54m b/d while imports dropped 126k b/d to 958k b/d, 7% lower year-on-year. Crude inventories declined 3.4m bbl from the previous weeks 8 year high to 343.7m bbl, with a 448k b/d fall in imports to 10.5m b/d contributing to the drop. Distillate stocks rose 1.8m bbl to 126.3m bbl despite a 20k b/d drop in imports to 264k b/d and a 4k b/d rise in demand. Refinery utilisation inched 0.5% higher to 93.8%.

ConocoPhillips, the second-largest US oil refiner, has asked for 500k bbl of oil from the strategic petroleum reserve to supply its Westlake refinery in Louisiana, reports Bloomberg. Citgo gained approval for a 250k bbl loan for its Lake Charles plant. The 2 plants, which account for almost 4% of U.S refining capacity, have reduced processing after crude shipments were cut off due to the closure of the Calcasieu Ship Channel following an oil spill. Between them they can process 679k b/d of oil and produce 186k b/d of gasoline.

Full production at Drummond's Colombian operations has already resumed, less than a week after a month-long strike halted output, McCloskey reports. However, a normal schedule of shipments is not expected for at least ten days. McCloskey adds that heavy rainfall in addition to industrial action has resulted in production losses of at least 3 Mt in the 2q06.

According to McCloskey, Indian coal imports in May climbed to their highest ever monthly level, reaching 4.80 Mt, compared with just 3.58 Mt in May 2005. The previous record import month was July 2005 with 4.12 Mt. Both coking and steam coal imports reached their highest level of the year: coking imports totalled 1.93 Mt, while steam coal reached 2.87 Mt. Shipments from Indonesia accounted for the majority of India's steam coal imports, comprising 8.59 Mt of the 11.43 Mt imported in the year to date.

Nigeria's gasoline imports are set to rise to 165k b/d in the 3q06, up from 99k b/d in the 1q06 and 123k b/d in the 2q06, reports Petroleum Argus. Gasoline consumption in 2005 was close to 200k b/d, suggesting that Nigeria will import over 80% of its gasoline in the 3q06, the majority of which will come from northwest Europe, offering support to Atlantic product markets. The increase follows the closure of the 125k b/d Warri and 110k b/d Kaduna refineries in March, which were shut down after crude stocks ran out due to the pipeline feeding them being sabotaged. The 2 refineries may not reopen this year due to threats against the technicians repairing the pipeline. The only refinery now operating is the 210k b/d Port Harcourt complex, which is processing around 110k b/d of crude as opposed to the usual 200k b/d throughput.

Iraq has issued a tender to sell 6m bbl of Kirkuk crude from Ceyhan, the first since Aug '05, as stocks have built with crude recently flowing through the pipeline from northern Iraq, reports Petroleum Argus. If the June tender is successful exports via Ceyhan could be boosted by 200k b/d in June and July. Exports from southern Iraq are set to start rising, with shipments from Khor al-Amaya expected to resume after a fire at the end of May closed the terminal. Loadings at the port were around 150k b/d in recent months.

Iraq's oil production has reached 2.5m b/d, the highest since the U.S-led invasion in April 2003, and daily oil production is expected to rise to 2.6-2.7m b/d by the end of the year, reports Reuters. The country's new oil minister, Hussain al-Shahristani, announced Iraq hopes to raise production to 4mb/d by 2010, and 6mb/d by 2012, with the aim of challenging top oil exporter Saudi Arabia within a decade. Since the invasion, production has been around 2m b/d, with exports of 1.5m b/d, compared to pre-war output of nearly 3m b/d and exports of around 2mb/d.

While China’s steel production has experienced robust growth in 2006, reaching a record monthly high of 35.9 Mt in May 2006, the latest market data from China indicate a slight softening in steel prices. Prices for wire rod, widely used in the construction industry, are now slightly down on the 2006 peak of $436/tonne to $428/t, although they are 17% higher than the mid-February level. Moreover, reports from China suggest that iron ore stockpiles at major iron ore ports have been rising steadily this year and now total 44 Mt, compared with 38.5 Mt at the beginning of March.

Mexican crude output fell by 41k b/d in May month-on-month to nearly 3.33m b/d, down 0.4% on the year, reports Petroleum Intelligence Weekly. For the year to date, output has averaged at nearly 3.35m b/d. Exports of crude inched 2k b/d lower in May to 1.83m b/d, but remained 5.2% higher year-on-year. Exports have averaged 1.93m b/d over the year so far.

Exports of steel products from China reached a monthly record in May, according to China's Customs Statistics. Cement exports also performed in May, totalling over 3 Mt for the third successive month. Shipments of these two cargoes, which have boosted Handymax demand in the Pacific, reached 7.23 Mt, compared with 4.26 Mt in the corresponding month last year.

Official customs statistics from China reveal that China's coal imports in the first five months of the year totalled 15.95 Mt, a leap of 63% on the same period last year, reflecting the rapid demand growth from the country's electricity and steel sectors. At the same time, exported coal is in decline, amounting to 26.59 Mt (-12% YOY). When annualised, net coal exports this year currently stand at 25.5 Mt compared with 45 Mt in 2005 and over 80 Mt in 2003. The fall in coal shipments from China means that buyers in NE Asia increasingly need to import from alternative, longer-haul, sources to the benefit of ship demand.

US crude stocks rose 1.4m bbl last week to 347 m bbl, the highest since the week ending 29 May 1998, despite refiner demand increasing due to refinery utilisation improving 0.6% to 93.3%, according to the latest data from the US Department of Energy. The growth was helped by a 447k b/d rise in imports to nearly 11m b/d, the highest since the week ending 5 Aug 2005, and 8% up on the year. Distillate inventories grew 1.7m bbl to 124.5m bbl, despite demand rising 7k b/d to nearly 4.1m b/d and imports dropping 79k b/d to 284k b/d. Distillate imports are now 100% higher year-on-year. Gasoline stocks inched up by another 0.3m bbl to 213.4m bbl, with imports falling 326k b/d to nearly 1.1m bbl and demand rising 16k b/d to just over 9.4m b/d.

China's aluminium production reached 747,000 tonnes in May, a record monthly high, according to data from the International Aluminium Institute. This marks the fourth consecutive monthly rise in Chinese output. In May, China accounted for 27% of world aluminium production compared with 20% in the whole of 2003, demonstrating the increasing importance of China to the seaborne bauxite and alumina trades.

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Global steel production in May reached 104.1 Mt, the highest monthly total by far. This represents a year-on-year increase of 9.3%, according to the latest data from the International Iron and Steel Institute. While China recorded monthly production of 35.9 Mt (up 19.6% YOY), output growth was also strong in the EU-25 (17.5 Mt, up 8.7%), the FSU (10.2 Mt, up 6.8%) and the US (8.4 Mt, up 8.4%).

OPEC has lowered its forecast for world oil demand growth in 2006 to 1.36m b/d, or 1.63%, to an average 84.63m b/d, according to its latest monthly report. OPEC has also revised up its forecast for the call on its own crude in 2006 by 110k b/d to 28.73m b/d. The report states that while the biggest share of the increase in world oil demand growth is mainly in the developing countries, signs indicate an easing in oil demand, partly due to high prices. Developing countries are projected to contribute 0.59m b/d to demand growth, an increase of 2.64% year-on-year. China's demand is expected to grow 7.15%, or 0.47m b/d, year-on-year to 7.01m b/d due to economic growth being forecast at 9.5% for 2006.

UK coal imports in April were at the second highest monthly total ever, the latest trade data show. Combined imports of coking and steam coal totalled 4.40 Mt. This brings the total for the first four months of the year to 15.75 Mt, a rise of 2.48 Mt on the same period last year. Most of the import growth has come from steam coal shipments, which increased 2.02 Mt to 13.43 Mt in the first four months.

Russia's crude production reached a record high of 9.59m b/d in May, 0.3% higher than in April-the previous record was 9.57m b/d from Nov '05, reports Petroleum Argus. Exports along the Transneft pipeline system are set to rise to 4.44m b/d in 3q06, an increase of 5.3% against planned 2q06 volumes. Loadings at the Baltic port of Primorsk are expected to reach a new record high of 1.36m b/d in the 3q06, with total deliveries to Baltic ports set to rise by 2.4% to 1.67m b/d. Crude exports through Black Sea ports are expected to increase by 12.4%, to almost 1.46m b/d, reports Argus.

Industrial action at Drummond's La Loma mine has still not been resolved, with negotiations breaking down this week, according to media reports. Platts reported that around 1.7 Mt of coal production has already been lost owing to the dispute, which started on May 22. Barlow Jonker's South African Coal Report noted that if the strike continued for 60 days (the legal maximum before an official arbitration panel steps in), an estimated 4.5 Mt of coal production would be lost. The tightening supply of Colombian coal has caused buyers to seek alternative sources, such as South Africa and Russia.

US gasoline stocks rose another 2.8m bbl last week to 213.1m bbl as US refinery utilisation rose from 91% to 92.7%, according to the latest data from the US Department of Energy. Gasoline imports inched 11k b/d higher to 1.41m b/d, up 35% year-on-year, while demand was up 46k b/d at just over 9.4m b/d. Distillate inventories also rose by 2.1m bbl to 122.8m bbl, helped by a 67k b/d rise in imports to 363k b/d and a 0.1m b/d increase in production. Demand was up 64k b/d at just over 4m b/d. Crude stocks dropped 0.9m bbl to 345.7m bbl with imports falling 334k b/d to over 10.5m b/d.

The latest trade forecast from the US Department of Agriculture puts world soya (bean and meal) imports in 2005/06 (Oct-Sep) at 114.2 Mt, up from last month’s forecast of 113.6 Mt. China is now expected to import 27.5 Mt of soyabeans, 0.5 Mt more than in May’s forecast. Looking ahead to 2006/07, the USDA anticipates world soya imports to reach 120.2 Mt. Again, most of the growth is expected to come from Chinese import demand; China’s soyabean imports are projected to rise from 27.5 Mt to 31.5 Mt.

The IEA has kept its world oil demand growth forecast virtually unchanged for 2006 at 1.24m b/d, taking expected levels to 84.9m b/d. Although a booming global economy continues to support demand growth, high prices are weighing on consumption, said the IEA in its June report. Non-OECD demand accounts for 41% of global consumption but its demand will account for nearly 85% of world growth in 2005-2006. Chinese apparent demand grew by 9.6% year-on-year in April, while preliminary data show demand in the US grew by 0.8% in April and 3.6% in May. OECD crude stocks rose 13m bbl to 1,005m bbl in Apr, their highest level in 20 years, as heavy seasonal maintenance cut refinery throughputs. Even so, crude stock cover held at 20.5 days, only 1 day higher than last year. On the production side, global oil supply grew by 445k b/d in May to 85m b/d due to an increase of 215k b/d from OPEC, a decline in North Sea maintenance and recovering US Gulf of Mexico supply.

The preliminary Chinese customs data for May are more positive for the sub-Capesize size ranges. If confirmed, the iron ore import figure of 24.57 Mt would be the lowest since October 2005, and we expect a significant component of this was shipped from India. At the same time, soyabean imports are high (2.41 Mt), bullish for Handymax and Panamax demand. Meanwhile, the preliminary total for coal exports in May is lower (4.4 Mt compared with 5.46 Mt in April). This would mean that buyers in NE Asia need to source from alternative, longer-haul, sources. China's steel exports are rising (3.49 Mt - to the benefit of Handymax demand).