News archive February 2007

Reports from India indicate that the new Indian Budget has imposed an export duty of approximately $7/t on iron ore exports with immediate effect.

With the delivered price of Indian high-quality iron ore into China already over $80/t, the new delivered price could approach $90/t. This would improve competitiveness of Brazilian ore into China (even after the 9.5% iron ore fines contract price rise enters force from April 1).

In the longer term, this appears to signal that the Indian government is trying to ensure that a higher proportion of ore mined in India goes to the expanding domestic steel industry (which grew almost 8% in 2006). In a further boost to the Indian steel industry, the import duty on coking coal (previously 5%) has been abolished.

US distillate stocks dropped another 3.8m bbl last week to 124.5m bbl, 7.2% lower year-on-year and the lowest since mid-June 2006, according to the latest data from the US Department of Energy. The fall came despite a 47k b/d rise in imports to 381k b/d, 24.5% higher on the year, and a 24k b/d drop in demand to 4.7m b/d. Gasoline inventories also fell another 1.9m bbl to 220.2m bbl as imports declined 59k b/d to 889k b/d, 27.7% lower year-on-year. Demand dropped 77k b/d to 9.1m b/d. Crude stocks rose a further 1.4m bbl to 329m bbl despite imports falling 220k b/d to 9.5m b/d. Refinery utilisation rose 0.8% to 86%.

India's government expects the country's economy to grow 9.2% in 2006/07 (April-March), a slightly faster rate than during the previous year, according to an official press release. Bloomberg comments that growth averaged 8.6% in the past four years, with industrial production (which comprises a quarter of the economy) enjoying annual growth of 15.4% in November 2006, the fastest expansion since April 2005.

Exports of Azeri Light from the Turkish port of Ceyhan are set to rise to 510k b/d in March, up 42% from January, reports Petroleum Argus. The increase is a result of strong demand for light sweet crude in Asia-Pacific and the US. Sales of Azeri Light, Algerian and Libyan crude to the USG and Asia-Pacific have been climbing due to tighter transport fuel specifications and a desire to diversify away from Nigerian crude due to supply issues. Security of supply concerns are prompting refiners in India, Indonesia and China to increase their purchases of Caspian and N. African crude. Over 160k b/d of Saharan Blend moved east on a spot basis last month, up 61% compared with 2 months earlier. Sales of February-loading Azeri Light to Asia-Pacific rose to 220k b/d, up from about 50k b/d 2 months earlier, reports Argus.

According to a poll of 47 leading economic forecasters, US economic growth this year is expected to be the slowest since 2002. The BBC reports that the survey from the National Association for Business Economics projects annual GDP growth at 2.7%. US GDP grew by 3.4% in 2006. The survey suggests that strong consumer spending (+3.2% annually) will offset the effects of a slower housing market.

West African crude exports to Asia-Pacific are set to reach at least 1.44m b/d in March, the highest since 1.5m b/d in May 2006, prompted by a weakening of benchmark BFO relative to Asian makers, reports Petroleum Argus. Asia-Pacific purchases of W. African crude are unlikely to equal the record 1.67m b/d achieved in March 2006, as China has diversified its supply base to include Sudan, Russia and Venezuela. China refiners are forecast to take 674k b/d of W. African crude this March, down 27% year-on-year, reports Argus.

The global corn trade in the 2006/07 trade year (July-June) is forecast by the International Grains Council to reach a record 84.0 Mt. This is an upward revision of 2.0 Mt on last month's IGC projection and marks a jump of 6.3 Mt on the 2005/06 estimate. Much of the anticipated annual import growth comes from Mexico (+1.8 Mt to 7.9 Mt), the EU-27 (+1.4 Mt to 3.5 Mt), North Africa (+0.9 Mt to 9.8 Mt) and South America (+1.4 Mt to 8.2 Mt). As a result, the IGC's export forecast for the US has risen from 51.1 Mt in 2005/06 to 57.5 Mt for 2006/07. However, the increase in exports has been facilitated by a significant drawdown in stocks, as US consumption increases (driven largely by rapid growth in ethanol production from domestic corn). Already, preliminary forecasts from the US Department of Agriculture predict a sharp drop in US corn exports from 2008 due to diversion of supplies for ethanol production.

A new tonnage allocation scheme aimed at alleviating congestion at Newcastle has been approved by port operator Port Waratah Coal services, McCloskey reports. The proposed scheme would set shippers quotas month-by-month instead of the previous quarterly basis in a bid to avoid queueing 'spikes' (formed as shippers tried to fulfil their quarterly allowances). The proposal still requires approval from Australia's competition regulator, the ACCC, before it can enter into force.

In the meantime, the situation could deteriorate further, according to a new report. The Hunter Valley Coal Chain Logistics Team forecasts that the vessel queue will grow to 71 by March 4. Presently (February 22), the vessel queue is reported at 64.

US distillate stocks slumped another 5m bbl last week to 128.3m bbl, 5.4% lower year-on-year, according to the latest data from the US Department of Energy. Imports inched 23k b/d lower to 334k b/d, 32% lower on the year, as demand rose 25k b/d to 4.73m b/d, the highest since the week ending 31 January 2003. Gasoline inventories fell 3.1m bbl to 222.1m bbl, despite imports rising 128k b/d to 948k b/d as demand increased 137k b/d to almost 9.2m b/d. Crude stocks grew 3.7m bbl to 327.6m bbl as imports rose 158k b/d to 9.74m b/d. Refinery utilisation dropped 1.4% to 85.2%, the lowest since the week ending 3 March 2006.

China's Customs Statistics confirm that the country was a net coal importer for the first time in January, with record imports of 4.70 Mt and exports of 3.29 Mt. The trend of rising Chinese imports accompanied by lower exports is one of the factors behind tightening coal supply in the Pacific.

The tightness of the coal market was further demonstrated by a Platts report that a steam coal contract price rise of nearly 6% for the 2007 fiscal year had been agreed between Japanese utility, Chubu Electric, and mining company, Xstrata. Furthermore, the reported new contract price of around $55.50/t would be above the current spot price at Bolivar, Newcastle and Richards Bay.

North Sea crude loadings for the 8 principal Norwegian and UK crude systems are set to decline 106k b/d in March month-on-month to 2.35m b/d, reports Energy Intelligence. The biggest drop is from Norway's Oseberg field which is forecasting a fall of 56k b/d, while the Ekofisk and Troll programs show declines of 36k b/d and 19k b/d respectively. Brent, Forties and Oseberg showed a combined drop of 72k b/d, reports Energy Intelligence.

US housing starts in January have fallen to their lowest annual pace since 1997, falling 14% from the previous month, Bloomberg reports. Data from the US Department of Commerce put housing starts at 1.408 million, below market expectations, which had ranged from 1.50-1.72 million. A dip in housing construction activity already appears to have impacted US imports of cement. After a strong start to 2006, with Q2 and Q3 cement imports both exceeding 10 Mt, the Q4 estimate of 7.3 Mt was the smallest quarterly total for the year and was down 0.8 Mt year-on-year.

Iraq is targeting output of 3m b/d by the end of 2007, with crude output reaching 1.99m b/d in 2006, 150k b/d higher year-on-year, reports Petroleum Argus. January output totalled 1.66m b/d, down from 1.93m b/d in December. Work on pipelines supplying the Basrah Oil Terminal will add nearly 250k b/d to loading capacity, taking it to 1.92m b/d. Iraqi crude exports have been switching away from the Americas to Asia-Pacific, recent detailed export data show, reports Argus. Exports to America fell to 43%, 660k b/d in the 3Q06, while Asia-Pacific's share of Iraqi exports rose to over 36% from 28% in the 2Q06.

Congestion at Australia's coal ports continues to worsen, with the SSY Australian Coal Port Congestion Index rising to another record of 16.8 days. This is double the level recorded at the beginning of November 2006. Berthing delays at the country's iron ore ports are also on the rise, moving above 8 days for the first time since May last year.

Meanwhile, McCloskey reports that Newcastle shippers have voted to reinstate a variant of the tonnage quota system in force until the end of 2006 in an attempt to reduce berthing delays at the port. The move still requires approval from port operator, Port Waratah Coal Services (expected later this week), and the national competition regulator, the ACCC. McCloskey comments that the system is likely to be in place for the 2q07.

World steel output in January grew at a robust 13.5% year-on-year to 107.9 Mt, according to data from the International Iron and Steel Institute. Chinese monthly steel production rose for the fourth consecutive month to 38.4 Mt (+27% on the same month last year). Other notable increases were in evidence in the EU-25 (+10% to 18.1 Mt), the FSU (+11% to 10.7 Mt), Japan (+7% to 10.1 Mt) and India (+9% to 4.0 Mt). Steel production in the US (which declined by 11% year-on-year in December 2006) expanded at an annual rate of 3% in January to 8.3 Mt.

The vessel queue at Newcastle has now reached 65, another record, according to McCloskey. Congestion is also worsening at Dalrymple Bay and Gladstone with queues approaching 30 at each port. The latest SSY Coal Port Congestion Index, which takes berthing delays at all major Australian coal ports into account, reached a record 15.5 days on Monday. Meanwhile, Australian media report that proposals for a new tonnage quota system for Newcastle are being discussed by an industry working group with a vote expected next week.

Vessel queues have been lengthening at Indonesia's coal load facilities, McCloskey reports. Heavy rains have reduced coal production at some mines in east Kalimantan by as much as 50%, according to the latest reports, leading to waiting times of 2-3 weeks at Samarinda. In a separate development coal loading has stopped at Bontang port after a loader breakdown at the weekend.

OPEC has maintained its estimate for the growth in oil demand in 2007 at 1.5%, or 1.2m b/d, in its latest report, after unusually warm temperatures in the northern hemisphere winter dropped recently. In 2007, the demand for OPEC crude is expected to average 30.25m b/d, down 0.15m b/d from the 2006 estimate. Non-OPEC supply in 2007 is forecast to reach 50.7m b/d, up 1.2m b/d year-on-year. Total OPEC crude output in January averaged 29.97m b/d. The price of the OPEC reference basket dropped 12% to average $50.73/bbl in January, the lowest level since May 2005, due to the impact of a warm winter on demand, ample OPEC supply and rising US stocks in the first half of the month.

US coal imports (excluding imports from Canada) jumped from 25.8 Mt in 2005 to 31.0 Mt in 2006, according to data from the US Department of Commerce. The annual jump of 5.2 Mt was the largest annual increase since 2003. Shipments from Colombia climbed from 19.2 Mt in 2005 to 23.0 Mt last year. Meanwhile, imports from Venezuela rose 0.4 Mt to 3.8 Mt in 2006 and imports from Indonesia were up 0.6 Mt to 2.9 Mt.

US distillate stocks fell another 3m bbl to 133.3m bbl, 2.6% lower year-on-year, as demand rose 58k b/d to 4.7m b/d, according to the latest data from the US Department of Energy. Imports inched 18k b/d higher to 357k b/d, but still 48% lower on the year. Gasoline inventories fell 2m bbl to 225.2m bbl following a 164k b/d drop in imports to 820k b/d, 25% lower on the year. Import levels have dropped 36% in the last 2 weeks. Demand was down 75k b/d at just over 9m b/d. Crude stocks dipped 0.6m bbl to 323.9m bbl despite imports rising slightly to 9.58m b/d. Refinery utilisation fell 0.7% to 86.6%.

Bauxite production in Guinea has once again been affected by a general strike, Reuters reports. Operations at Guinea's Sangaredi bauxite mine have been halted after gunfire and looting overnight, according to a representative from the mining company CBG (Compagnie des Bauxites de Guin

The International Energy Agency has revised its forecast for global oil demand in 2007 up to 1.8%, or 1.55m b/d, to 86m b/d, compared to 1% growth in 2006. The rise follows revisions made to Chinese demand, which is now slated to reach 7.6m b/d in 2007 taking non-OECD demand growth to 3.2% in 2007. World supply grew 175k b/d in January to 85.5m b/d, with higher output in the FSU and other non-OECD producers. January OPEC crude supply fell 180k b/d in December to 30.2m b/d (adjusted for Angola). Non-OPEC supply growth was lowered to 1.1m b/d in 2007 due to revisions in data for N. America, China, Ecuador and Argentina.

China's crude imports rose 3.4% in January year-on-year to an average 3.24m b/d, having risen 504k b/d on the month, according to preliminary data from the China's Customs Statistics, reports Dow Jones. Product imports were up 5.8% on the year at 656k b/d having increased 149k b/d from December. China's oil imports are likely to stay strong in the coming months, as long as benchmark oil prices don't return to the historical highs seen last summer, while the country's build up of its strategic inventories will boost demand for crude imports, reports Dow. Crude exports dipped 49k b/d on the month to 166k b/d but were 64k b/d higher year-on-year. Product exports were 55k b/d down from December at 220k b/d.

Chinese iron ore imports in January climbed to a massive new high of 35.9 Mt, according to preliminary trade data quoted by Forbes. This marks a significant increase on December when 28.6 Mt were imported and surpasses the previous record high of 32.8 Mt recorded in August 2006. The high level of shipments implied by the monthly total is consistent with rising Indian iron ore fob prices. Furthermore, stocks at China's iron ore ports are now 41.1 Mt, up 3 Mt from the end of December, suggesting that the surge in iron ore imports is not simply due to stockbuilding by Chinese buyers ahead of the 9.5% iron ore fines contract price increase due from April 1.

According to trade data quoted by Macquarie Bank, of the 326 Mt of imported Chinese iron ore in 2006, the majority were sourced from Australia (126.8 Mt, up 14 Mt year-on-year). Imports from Brazil enjoyed the largest YOY rise, reaching 76.4 Mt, up some 21.7 Mt year on-year. Meanwhile, imports from India increased 6.2 Mt to 74.8 Mt last year, compared to an annual increase of 18.4 Mt in 2005.