News archive June 2007

Declining wheat supply prospects from Black Sea exporters have prompted the International Grains Council to cut its wheat trade forecast for the 2007/08 trade year (July-June) from last month. The IGC has lowered its 2007 Ukrainian wheat production forecast by 4.0 Mt from May to 13.0 Mt, while Russian crop expectations were reduced by 2.0 Mt to 46.0 Mt.

As a result, combined wheat exports from the two countries in 2007/08 are predicted to be 13.2 Mt compared with last month's projection of 16.4 Mt. The IGC's 2007/08 world wheat trade forecast is now 106.7 Mt, down 2.6 Mt from the May forecast and down 0.8 Mt on the 2006/07 estimate.

Xstrata has declared force majeure on steam coal supplies from its Newlands mine, Reuters reports. Newlands coal is shipped through the east Australian port of Gladstone. Heavy rainfall in the area has caused various operational problems at the 10 Mtpa mine and has served to tighten Australian steam coal supply even more following the recent weather-related disruption around Newcastle and the Hunter Valley. There has been no indication as to when operations will normalise.

West African crude loadings are set to rise over 1.5m b/d in July month-on-month to 4.79m b/d, reports Energy Intelligence. Volumes from Angola are forecast to grow 273k b/d to 1.65m b/d as higher shipments to Asia offset declines to the Americas. Levels from Nigeria are projected to increase 134k b/d to 2.2m b/d, with most of the growth coming from countries outside the Americas and Asia. China is scheduled to take 675k b/d of W. African crude, 275k b/d less than June, while India is set to increase its shipments from 150k b/d to 337k b/d.

US steel imports in May reached 2.91 Mt, according to data from the American Iron and Steel Institute. This represents a rise of 0.41 Mt on the previous month, but is still some 0.66 Mt below the level for the same month last year.

Noting that May saw the highest monthly import total this year, the AISI also drew attention to the rise in shipments of steel from China. After Canada, China has been the largest supplier of finished steel products to the US with around 4.5 Mt in the first five months of 2007. Although this marks a 7% year-on-year fall, the AISI argued that "with state-supported steel capacity additions and trade and market-distorting practices on the rise worldwide, we [the US] need to ensure consistent enforcement of our trade remedy laws and strengthen these laws up to their WTO-allowable limits."

It was against this background that the Chinese government recently raised export tax levels on a wide selection of steel products.

US distillate stocks slumped 2.3m bbl to 120.4m bbl last week, 4.6% lower year-on-year, as imports dipped 41k b/d to 214k b/d and demand grew 305k b/d to 4.39m b/d, according to the latest data from the US Department of Energy. Gasoline inventories fell 0.7m bbl to 202.6m bbl, 4.6% lower on the year as imports dropped 172k b/d to 1.1m b/d,
16% higher than the same week last year. Crude stocks grew 1.6m bbl to 350.9m bbl, the highest since May 1998, despite imports dropping 290k
b/d to 10.5m b/d. Refinery utilisation increased 1.8% to 89.4%.

Iraq has issued its first sell tender in 5 months for Kirkuk crude pumped through its sabotage-plagued pipeline from northern oilfields to Turkey, reports Reuters. 3m bbl of crude has been offered to be loaded in 1 or 2 m bbl cargoes from Ceyhan up to 23 July. Oil has flowed intermittently since last month following attacks that have kept the line out of action for most of the time since the US-led invasion of Iraq in March 2003. Iraq last exported crude from Kirkuk in Jan and there is now 3.2m bbl of Kirkuk oil in storage in Ceyhan. When the line is down, Iraq relies on its southern Basra oil terminal for exports of about 1.5m b/d, reports Reuters.

Bloomberg reports that the latest rally in soybean futures in Chicago was supported by unusually dry weather affecting crops in China, the largest buyer of oilseed in the world. Meanwhile, according to the US Department of Agriculture survey of farmers’ planting intentions in March, soybean acreage in the US, the world’s biggest soybean exporter, could drop 11% to 67.1 Mt this year, the lowest in 11 years. Both of these factors are likely to put pressure on Brazil and Argentina to meet any shortfall of soybeans.

The SSY Australian Coal Port Congestion Index climbed to another all-time high of 22.4 days this week with congestion particularly pronounced at Dalrymple Bay and Newcastle. The Hunter Valley Coal Chain Logistics Team, a representative body of port and rail operators, has raised its projection for the end-July vessel queue at Newcastle. The HVCCLT now expects the queue to shrink from its present level of 73 to 57 at the end of July. This compares with a forecast of 42 two weeks ago, indicating some deterioration in the operators' outlook.

China's implied oil demand grew 7.3% in May to 7.04m b/d, the fastest pace in 9 months, increasing the likelihood of another summer demand surge fuelled by rising auto travel, construction and warm weather, reports Reuters. Demand was 6.86m b/d in the first 5 months, or 5% higher year-on-year. The rapid growth follows 3 months of lower consumption growth of less than 4%. Despite steadily high gasoline exports this year, gasoline demand grew 8.3% in May on the year while demand for kerosene jumped 17.5%. Diesel consumption rose nearly 9%, its quickest rate since April last year. China's refiners increased production by 10% year-on-year to a record high of 6.58m b/d, the fastest growth in 11 months, after coastal refiners raised runs. China gasoline exports were up 82% in May on the year while diesel exports rose to the highest level since early 2006, reports Reuters.

According to McCloskey, steam coal imports into South Korea are poised to increase by 10.2 Mtpa over the next two years as a result of new additions to the country's coal-fired power sector. Import requirements are projected to grow to 55.7 Mt this year and to 61.4 Mt in 2008. McCloskey adds that declining imports from China will lead to increasing reliance on shipments from Australia, Indonesia and Russia's Pacific ports.

After plunging nearly 40% from an all-time high of 9,687 points in mid-May, the Baltic Exchange Capesize Index has staged a dramatic rebound over the last few days. Today the BCI experienced its biggest-ever daily rise of 576 points, taking the Index to 7,345 points.

With a squeeze in vessel supply due to port congestion, the balance between vessel supply and demand has become tighter, so that relatively small changes in demand lead to more volatility. On estimate, around 14% of the world Capesize fleet is currently at anchor off iron ore and coal ports in Australia and Brazil.

Exports of steel and cement from China maintained a high pace in May, according to China's Customs Statistics. May shipments of steel (both semi-finished and products) reached 7.1 Mt, the second-highest monthly total on record, while cement exports were 3.1 Mt. As a result, combined cement and steel exports from China during May were up 3.0 Mt year-on-year at 10.2 Mt.

US residential housing starts in May reached an annual rate of 1.474 million units, according to the latest US Department of Commerce data. While this marks a small upturn from the January 2007 rate of 1.408 million, it is still far below the recent high of January 2006, when monthly housing starts stood at an annual rate of 2.276 million units. It also represents a year-on-year decline of around 25%. Earlier this month, Federal Reserve chairman, Ben Bernanke, argued that "the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected."

US crude stocks jumped 6.9m bbl last week to 349.3m bbl, their highest level in over 9 years, as imports rose 650k b/d to 10.79m b/d and refinery outages continued to cause disruption, according to the latest data from the US Department of Energy. Refinery utilisation fell 1.6% to 87.6%. Gasoline inventories grew 1.8m bbl to 203.3m bbl, as imports increased 200k b/d to 1.28m b/d. Demand was also up 104k b/d at 9.59m b/d. Distillate stocks inched 0.1m bbl higher to 122.7m bbl as imports rose 75k b/d and demand remained at approximately 4m b/d.

With coal export availability already very tight in Australia, the after-effects of Indonesia's wet season are still causing supply chain difficulties, according to McCloskey. Flooding in the coal-producing region of South Kalimantan has impacted production levels at some mines in the area, while some roads have been impassable. These supply-side problems have compounded difficulties for purchasers in NE Asia, in the face of reduced coal exports from China.

Eni has declared force majeure on oil shipments from the Ogbainbiri flow station in Nigeria after the facility was attacked on Sunday, reports Reuters. The oilfield station was one of two plants in the Niger Delta attacked at the weekend. As a result, 37k b/d of production at the site is offline, taking the total outages in Nigeria to around 756k b/d. Chevron has also reduced its Nigerian output by 42k b/d as a result of an attack on its Abiteye flow station over the weekend, reports Reuters.

Global steel production in May reached another monthly record of 112.2 Mt (+6.4% YOY), according to the latest data from the International Iron and Steel Institute. May also saw record output in China with 41.3 Mt, up almost 16% on the same month last year. Japan and South Korea enjoyed significant production increases: South Korean steel mills produced 4.4 Mt (+6.3% year-on-year), while their Japanese counterparts produced a historically high 10.2 Mt (+2.6%). Meanwhile, steel output in Brazil was up 16.2% to 2.9 Mt.

Steel production in the US and Europe lagged year-ago levels, however. IISI data put US May output at 8.4 Mt (-6.2% YOY), while the monthly total of 15.4 Mt for the EU-27 was down marginally (-1.2%) on May 2006.

China's industrial production rose 18.1% year-on-year in the first five months of the year according to the country's National Bureau of Statistics. This compares with growth of 16.6% for all of 2006. Meanwhile, fixed-asset investment in urban areas increased by a robust 25.9% year-on-year in the first five months of 2007. The Chinese economy expanded 11.1% in the 1q07, the fastest quarterly growth in 11 years.

The Hunter Valley Coal Chain Logistics Team, which represents the coal and rail operators involving Newcastle, has advised that over 2 Mt of throughput will have been lost as a result of damage to the rail network linking the coal mines of the Hunter Valley to the east Australian port. Railings are expected to be below 50% of capacity over the next few days, returning to target rates in around a week's time.

According to the HVCCLT announcement, two laden Capesize vessels departed the port on June 13. Port Waratah Coal services, the Newcastle port operator, now anticipates the end-July vessel queue to be 42 as opposed to previous estimates of around 20 (there are currently 67 ships reported offshore of Newcastle).

Gasoline imports fell 349k b/d last week to 1.16m b/d, 18% lower year-on-year, however, stocks remained unchanged at 201.5m bbl as production increased to over 9.3m b/d, according to the latest data from the US Department of Energy. Distillate inventories rose 0.3m bbl to 122.6m bbl despite imports falling 49k b/d to 180k b/d, the lowest level since April 2006, and demand remaining relatively unchanged at just over 4m b/d. Crude stocks inched 0.1m bbl higher to 342.4m bbl, while imports fell 99k b/d to 10.14m b/d and refinery utilisation dipped 0.4% to 89.2%.

India's industrial production grew 13.6% annually in April, exceeding economists' expectations, Bloomberg reports. The country has also been enjoying rapid GDP growth (an annual rate of 9.1% in the 1q07) accompanied by year-on-year growth in steel production of 7.6% in the first four months of 2007. Economic growth in India has averaged 8.6% in the last four fiscal years.

China's crude oil imports rose 4.7% in May year-on-year to an average 3.1m b/d, despite falling 15% on a daily basis from the previous months record high, according to preliminary data from China's Customs data. Imports for the January-May period rose 9.6% on the year to an average 3.28m b/d. Product imports were up 6.4% year-on-year at 751k b/d, with volumes for the January-May period growing 4.4% to an average 717k b/d.

In its latest monthly report, the IEA increased its forecast for global oil demand in 2007 by 420k b/d to 86.1m b/d, a year-on-year growth rate of 2%. Refinery throughput rose 0.6m b/d to 72.4m b/d in April but runs are expected to rebound to an August peak of 75.2m b/d due to higher OECD throughput. World oil supply fell 565k b/d in May to 84.9m b/d as seasonal OECD stoppages compounded weaker OPEC crude supply. OPEC supply fell 425k b/d to 30.1m b/d due to more Nigerian outages. Non-OPEC output in 2007 is forecast to be 50.2m b/d, growth of 0.9m b/d on the year.

In May Chinese imports of soyabeans reached the highest monthly total since August 2006 (2.96 Mt), according to preliminary Chinese customs data. Furthermore, the latest US Department of Agriculture World Markets and Trade report has forecast record Chinese soyabean imports for 2007/08 (Oct-Sep) of 34.5 Mt, up from an estimated 30.0 Mt in the current trade year. The USDA also predicts sizeable increases in soya exports from Latin America in 2007/08. Combined exports of both soyabean and soya meal from Brazil are forecast to climb to 41.7 Mt (+4.4 Mt on this year's estimate), while Argentina's soya exports are projected to rise to 37.9 Mt (+4.3 Mt).

The severe weather conditions, which hit New South Wales over the weekend, may have removed 2 Mt of coal throughput from Newcastle, according to a report from McCloskey. Both Newcastle and Port Kembla were closed from Friday (June 8), with Port Kembla returning to operation yesterday (June 10). Furthermore, flooding in the Hunter Valley, described by Bloomberg as the worst in the region for 30 years, is likely to have caused damage along the supply chain. However, the precise scale of the damage cannot be fully assessed while storm conditions remain. A strong wind warning and a flood warning for parts of New South Wales have been issued by Australia's Bureau of Meteorology today.