News archive January 2008

US steel imports declined sharply in December to 1.8 Mt, compared with 2.1 Mt in the previous month and 2.7 Mt in December 2006, according to preliminary data issued by the American Iron and Steel Institute. This was the lowest monthly import level since February 2004 and takes the 2007 total imports to 29.9 Mt, 27% lower than record 40.9 Mt in 2006. China remained the largest offshore steel supplier, followed by S. Korea and Japan. The 2007 import total is similar to the annual average (of 29.1 Mt) between 2000-2005, but well above the exception of 20.6 Mt in 2003, which could imply further downward potential in 2008.

US crude stocks grew another 3.6m bbl last week to 293m bbl, but remained 9.8% lower y-o-y, as imports fell 100k b/d to just over 10m b/d, according to the latest data from the US Department of Energy. Gasoline inventories increased 3.6m bbl to 223.9m bbl while imports dropped 72k b/d to 1.16m b/d and demand fell 24k b/d to 8.9m b/d. Distillate stocks fell 1.5m bbl to 127m bbl, 9.3% lower on the year, despite imports rising 35k b/d to 277k b/d and demand falling 141k b/d to 4.2m b/d. However, distillate production fell 210k b/d as refinery utilisation dropped 1.5% to 85%.

US economic growth in the 4Q07 fell to an annual rate of just 0.6%, down from 4.9% in the 3Q07, reports the BBC. The slowdown was triggered by a slump in building activity, which fell by 16.9%, the biggest fall in 25 years, as housing prices collapsed. In its latest report the International Monetary Fund lowered its forecast for global
economic growth this year to 4.1%, after nearly 5% last year.

There are varying accounts of the extent to which coal exports from China will be reduced in an attempt to preserve more supply for domestic power stations. China Daily reported that the country's Ministry of Communications requested that shipping companies cease exports to enable more coal to be delivered domestically. However, Reuters reports that the coal load ports of Tianjin, Qinhuangdao and Rizhao are still exporting coal overseas, although this is understood to be for contracts agreed before the current energy crisis. Coal stockpiles at some power stations in China are now at three days' supply.

Some South African mining companies have halted operations as a result of power cuts. According to Macquarie Bank, power to coal mines with some 22 Mt of annual capacity has been cut indefinitely. This follows hard on the heels of flooding at some South African mines and a very low export performance in January.

S. Korea's SK Energy has announced it will phase out using single-hulls by end-2009, following GS Caltex's lead last week, reports Lloyds List. Of the 437 VLCCs that entered the ports of S. Korea last year, 229 were single-hulled, according to Seoul's maritime ministry. The Philippines is also starting to phase out single-hulled tankers by April 2008, bringing forward their plans by 2 years. Asia charters nearly all the estimated 150 single-hull VLCCs out of the total fleet of over 500.

Exports of Jan-loading W. African crude to China are expected to equal December's record of 950k b/d, before rising to a high of 1.05m b/d for Feb-loading cargoes, reports Petroleum Argus. The surge comes as the country's refiners boost runs in an attempt to counter fuel shortages. Crude runs in Jan are forecast to hit a record or nearly 6.8m b/d, as refiners prepare for higher demand during the lunar New Year. Output from Angola is set to rise to 1.89m b/d in Feb, up by 370k b/d y-o-y, due to the launch of the Mondo and Plutonio crudes. Outside China, buying interest for Jan and Feb-loading W. African crude from US, Indian and Taiwanese refiners was hit by high freight rates and turnarounds in the US. Indian buying is about 190k b/d for the first 2 months of this year, down from 350k b/d in 2007, reports Argus.

BHP Billiton Mitsubishi Alliance (BMA) has declared force majeure on some coal production following bad weather in Queensland. BMA advises that vessel loading will be delayed, but that the full impact of the rain-related disruption is still to be assessed. BMA uses Hay Point and Gladstone ports.

US gasoline stocks jumped 5m bbl last week to 220.3m bbl as imports rose 290k b/d to 1.2m b/d, 35% higher y-o-y, and demand fell 152k b/d to just under 9m b/d, according to the latest data from the US Department of Energy. Distillate inventories dropped 1.3m bbl to 128.5m bbl as imports fell 67k b/d to 242k b/d, 44% lower on the year, and demand rose 131k b/d to 4.3m b/d. Crude stocks grew 2.3m bbl to 289.4m bbl despite imports falling 233k b/d to 10.2m b/d. Refinery utilisation was down 0.6% at 86.5%.

China's economy grew 11.4% in 2007, its fastest pace in 13 years, despite GDP growth slowing in the 4Q07 to 11.2% from 11.5% in the 3Q07, reports China Daily. This marks a fifth year of double-digit growth and is just above the 11.1% revised 2006 level. Inflation in the country hit 4.8% for the whole year, well above the central banks target of 3%.

Around 5% of China's coal-fired power stations have been closed as heavy snowfall, high coal prices and transportation difficulties constrain coal supplies, Bloomberg reports. Some 90 power stations with a generating capacity of over 20,000 MW have been withdrawn from service. According to the country's state media, the shortfall in electricity generation across the country is higher than during the previous energy shortfall in mid-2004. Chinese media report that steam coal stockpiles are now almost 40% below normal levels, sufficient for just eight days' generation.

S. Korea's GS Caltex will ban crude shipments by single-hulled tankers from 2009, making it the first refiner in the country to do so, ahead of the government's decision to ban single-hulled tankers from travelling in its waters by 2011, reports Reuters. This is already earlier than the international regulation that calls for a ban from 2015, as a result of the Hebei Spirit oil spill in December 2007. GS Caltex charters in about six VLCCs each month for prompt delivery volumes, and most of these are single-hulled. An official in charge of offshore operations at the maritime ministry has said S. Korean refiners have decided to cut single-hulled tankers to 42% of vessels spot fixed on the country's crude oil import trades by the end of the year from the current 52%. S. Korea is the largest discharge area for single-hulled VLCCs, with about 25% of such vessels that are spot chartered discharging there. The Philippines government will also ban single-hulled tanker visits by April 2008, reports Reuters.

The US Federal Reserve has cut interest rates to 3.5%, an unexpected 0.75 percentage point reduction, in a bid to stave off a US recession, reports the BBC. The Fed announced the latest figures indicated a deepening of the US housing market slump and increased unemployment levels. The interest move was unforeseen, as it was taken outside its timetabled rate-setting Open Market Committee meetings. The last 2 such emergency cuts were on 17 Sept 2001, shortly after the attacks of 11 Sept, and on 3 Jan 2001, following the dotcom bust. The last time the Fed introduced such a large cut was in Aug 1982, reports the BBC. Crude oil futures slumped more than 3% Tuesday, despite the rate cut, on concern it will not be enough to prevent a US recession that would dampen crude demand, reports AP.

The SSY Australian Coal Port Congestion Index declined to 13.7 days from 14.5 days two weeks ago. According to the Hunter Valley Coal Chain Logistics Team, the operator body that co-ordinates rail and port cargo movements through Newcastle, the current vessel queue at Newcastle has declined to 27 vessels from 30 last week. Their forecast for the end-January queue is 24 vessels, while the end-February queue is projected at 18 vessels.

Meanwhile, Queensland has been experiencing the worst rains in 17 years, which have severely disrupted coal production and transportation. The flooded region is the world's biggest coking coal exporter, at over 100 Mt/year, and is home to the coal terminals of Dalrymple Bay, the second-largest in Australia, and Hay Point. Disruptions to cargo flows could add to East Australian vessel queues, which currently amount to just over 100 bulk carriers.

According to the International Iron and Steel Institute data released today, world steel production increased 7.3% in 2007 to 1.322 billion tonnes. Yet again, China was the greatest contributor to the growth, with annual production of 489 Mt (+15.3% year-on-year, meanwhile, annual steel production in the US declined by 1.4% to 97.2 Mt.

Steel production in December increased by 5% year-on-year to 110.6 Mt, with higher output in India (+8% to 4.7 Mt), China (+7.7% to 41 Mt), the US (+6.2% to 7.5 Mt), Japan (+3.2% to 10.4 Mt), and the EU (+3.2% to 17.1 Mt). Steel output in Russia declined 3.5% to 6.1 Mt.

Increasing gasoline demand in the Mideast Gulf is cutting exports, with suppliers likely to export less than 113k b/d this year, compared with 120k b/d in 2007, despite rising refining capacity, reports Petroleum Argus. Gasoline demand growth in the region was around 4-5% in 2002-5, but has now accelerated to 7% p.a as high oil revenues have fuelled economic expansion and helped drive a rise in car ownership. Saudi Arabia's domestic demand is 325k b/d this year compared with 255k b/d in 2002. Iran consumes 465k b/d of gasoline and is the second-largest importer after the US, although a rationing programme in place since June has reduced import demand. The Mideast Gulf is expected to consume more Indian gasoline in the future due to a large-scale refinery expansion programme taking place there.

China's refineries will reach record runs of 6.87m b/d in Jan, up from Dec throughputs of 6.79m b/d, which were already a record, reports Argus. Refinery runs were 6.51m b/d last year, up 8% or nearly 500k b/d on 2006. China's diesel imports rose to nearly 200k b/d in Dec compared with 41k b/d in Nov, which was already the highest imports level since Dec 2004. Dec fuel oil imports were nearly 255k b/d, down from just over 265k b/d in Nov, reports Argus.

The dry bulk freight market started 2008 with rapid declines from the record highs seen towards the end of 2007.

The Baltic Exchange Dry Index witnessed its biggest daily decline ever on January 17, falling 443 points or 6.4%, to its lowest level since last July. On January 18, the BEDI stood at 6,462 points, compared with 9,143 points on the last trading day of 2007.

The Capesize sector saw the biggest falls in vessel earnings, with the average 4 TCs falling almost $68,000/day since the start of the year to below $90,000/day for the first time since last June. Average Panamax earnings have declined by more than $9,800/day since the start of 2008, while the average of the 5 Supramax TCs fell by more than $11,600/day.

The latest falls in freight rates appear to have been prompted by short term disruptions to cargo availability, including the suspension of iron ore shipments from Itaguai port and the stoppage of coal exports from Baltimore terminal. However, demand for dry bulk commodities remains strong, as indicated by spot prices for iron ore, steel, coal and grains standing at or near record highs.

South Korean coal imports in January-November 2007 rose to over 80 Mt, representing annual growth of around 10%, according to the latest customs data. Coking coal imports in the first eleven months of 2007 reached 16.0 Mt (+2.2 Mt year-on-year), with gains in shipments from Australia and Canada more than offsetting fewer cargoes from China. Steam coal and anthracite imports during Jan-Nov rose to 64.7 Mt (+5.6 Mt YoY). Indonesian shipments accounted for the greatest share, rising to 23.0 Mt (+4.5 Mt).

Vale (formerly CVRD) has cancelled 5 Mt of iron ore shipments scheduled for the 1q08, according to "traders and shippers" quoted by Reuters. These reportedly comprise 30 cargoes to China, while another 20 cargoes due to be shipped in February will be delayed. Vale has made no official response to the reports.

Operations at the 25 Mtpa load port of Itaguai are only expected to restart at the beginning of February (the terminal is currently closed for repair work). Reuters also reports that the Guaiba Island Terminal is experiencing "equipment difficulties", tightening supply further.

Japan's biggest nuclear power plant (and the largest in the world) shut down following an earthquake on 16 July 2007, is expected to remain shut until at least the 2Q09, well beyond the original mid-2008 target, reports Reuters. Operator TEPCO is unlikely to get clearance to reopen its Kashiwazaki-Kariwa plant in northwest Japan before then, which will likely increase its oil demand. Since it shut the unit, which accounts for 13% of its power capacity, TEPCO has increased the amount of oil it burns to generate power to 176k b/d in Jul-Dec 2007 from 67k b/d in the same period 2006. It has nearly doubled its demand forecast for the full fiscal year to March to 175k b/d, its highest oil usage since the year ended March 1995, reports Reuters.

Coal imports into the UK in Jan-Nov of 2007 totalled 39.1 Mt, down 14.7% year-on-year, according to the latest trade data from the UK Customs Statistics. Shipments from Russia during this period fell by 14.3% to 18.0 Mt, but Russia continued to account for the majority (46%) of total imports. In addition, there were sharp declines in shipments from South Africa, which declined from 11.5 Mt in Jan-Nov 2006 to 6.6 Mt and shipments from Poland fell from 0.8 Mt to just 0.1 Mt. Meanwhile, imports increased from Australia (4.7 Mt, +23.7% y-o-y), the US (2.5 Mt, +42%) and Canada (1.6 Mt, +30.9%).

US crude stocks jumped 4.3m bbl last week to 287.1m bbl, despite a 583k b/d increase in imports to almost 10.4m b/d, but remained 10.7% lower y-o-y, according to the latest data from the US Department of Energy. However, stock levels at Cushing, the Nymex futures delivery terminal, fell 1.2m bbl, the first decline in weeks. Gasoline inventories grew 2.2m bbl to 215.3m bbl as a 188k b/d drop in demand to 9.1m b/d outweighed an 82k b/d fall in imports to 938k b/d. Distillate stocks also rose 1.1m bbl to 129.8m bbl as imports increased 178k b/d to 309k b/d. Refinery utilisation dropped 4.2% to 87.1%.

The IEA has kept its 2008 forecast for oil demand unchanged in its latest monthly report at 87.8m b/d, but revised its 2007 world oil demand up by 150k b/d to 85.8m b/d. Total global supply for 2007 averaged 85.5m b/d. World oil supply in December averaged 87m b/d, up 870k b/d on the month due to increases in OPEC-10, N. America, the FSU, Brazil and China. Supply was up over 1m b/d in the 4Q07 y-o-y. December OPEC supply rose 825k b/d to 32m b/d, following the inclusion of 500k b/d from Ecuador and the remaining 325k b/d coming from restored UAE output and higher Iranian exports. OECD stocks fell 38.1m bbl in November, down 123.8m bbl y-o-y, extending the move below the 5-year average and lowering forward cover to 51 days. Preliminary December data for the US, Japan and EU-16 show another 30.7m bbl draw.

US coal exports (excluding to Canada) reached 4.2 Mt in November, the highest monthly total since July 1998 and 1.6 Mt more than in November 2006, according to data from the US Department of Commerce. This takes January-November 2007 exports to 32.5 Mt, representing a gain of 34.3% on same period in 2006. Steam coal exports (excl. to Canada) in Jan-Nov 2007 totalled 8.8 Mt, compared with 5.2 Mt in the same period in 2006, with shipments to the EU accounting for the majority of the increase. US coking coal exports (excl. to Canada) increased to 23.7 Mt, up 4.6 Mt y-o-y, with higher shipments to Brazil and European destinations.

Meanwhile, pier two at the Baltimore exports terminal in the US is expected to be out of action for at least a month while repairs are undertaken following a "structural failure", reports McCloskey.