Energy Argus Petroleum Coke

Transcription

Issue 15-48 | Wednesday 2 December 2015
Market overview
Key prices
Petroleum coke spot market
US high-sulphur coke prices rebound
US Gulf high-sulphur petroleum coke prices are bouncing up
because of lower freight rates and sellers holding out for
higher prices.
Prices for 6.5pc sulphur coke have rebounded to the mid$20s/t after testing the $20/t level in a few deals two weeks
ago. Demand remains weak, but supply is limited as sellers
have closed out their 2015 contracts and others are holding on
to whatever they have left in order to capitalize on restocking
demand in early 2016.
A couple of buyers are in the market testing the waters for
December tons, but they say they will likely push back their
requests until after year-end if sellers hold to asking prices
at $25/t or more. Buyers are still hoping to contract at levels
closer to $23/t.
There have been one or two deals over the past week for
January loading at $23-24/t. One deal was heard at less than
$21/t, but participants said this was below market level and
could have been off-spec coke. The Argus assessment rose by
$1.50/t to $24/t.
Sellers’ renewed confidence is partly based on a widening
arbitrage to India. Freight rates for supramax vessels on the US
Gulf-to-India route have declined by $1.50/t to $20.50/t, and
cfr China: 3.0% vs 4.5% coke
130
cfr China 3%
$/t
Price
±
Four-week
average
Atlantic basin
fob US Gulf coast 4.5% sulphur
40
36.00
0.00
38.50
fob US Gulf coast 6.5% sulphur
40
24.00
+1.50
22.63
fob Venezuela 4.5% sulphur
70
39.00
-1.00
41.00
cfr Turkey 4.5% sulphur
70
50.00
-2.00
53.50
37.92
0.00
40.23
73.25
Coal, fob
US Gulf coast 3.0% 11,300 Btu
Pacific basin
fob US west coast <2.0% sulphur
45
72.00
-4.00
fob US west coast 3.0% sulphur
45
56.00
-4.00
59.00
fob US west coast 4.5% sulphur
45
49.00
-4.00
52.00
cfr China 6.5% sulphur
40
48.00
-1.00
50.25
cfr India 6.5% sulphur
40
45.50
-1.00
47.38
±
Four-week
average
Petroleum coke calculated prices
$/t
HGI
Price
Atlantic basin*
ARA 4.5% sulphur
40
47.00
0.00
50.13
ARA 6.5% sulphur
40
35.00
+1.50
34.25
48.00
Delivered Brazil 4.5% sulphur
40
45.00
0.00
Delivered Brazil 6.5% sulphur
40
33.00
+1.50
32.13
Delivered Turkey 6.5% sulphur
40
34.75
+1.25
33.88
Pacific basin**
Japan 3.0% sulphur
45
67.00
-4.00
71.00
Japan 4.5% sulphur
45
60.00
-4.00
64.00
*calculated by adding US Gulf spot market assessment to freight rate
**calculated by adding US west coast spot market assessment to freight rate
cfr China 4.5%
Coke freight rates
120
$/t
2 Dec
110
±
Four-week
average
Supramax
100
--
90
80
70
60
5 Nov 14
$/t
HGI
USGC to ARA
11.00
0.00
11.63
Venezuela to ARA
10.75
0.00
11.38
USGC to Mediterranean
12.88
12.25
-0.25
USGC to Brazil
9.00
0.00
9.50
USGC to China
21.50
-1.50
24.13
USGC to EC India
20.50
-1.50
23.25
Panamax
11 Mar 15
Copyright © 2015 Argus Media Inc.
8 Jul 15
11 Nov 15
USWC to Japan
11.00
0.00
12.00
USGC to Turkey
10.75
-0.25
11.25
are even lower for larger Panamax vessels. But cfr east coast
India prices have only declined by $1/t to $45.50/t.
One reason for price support in India is lower availability
of coke from Saudi Arabia. A mechanical fault with the long
conveyor that transfers coke from the Saudi Aramco-Total joint
venture refinery in Jubail to the port caused a delay of 7-10
days for vessels that had been scheduled to load early this
month. The refinery, which represents half of the country’s
coke production, can ship about four supramax vessels, or
200,000t/month, when logistics are fully operational.
Saudi coke prices are little changed at around $40-41/t cfr,
a much narrower discount to US coke than in recent months.
Buyers are starting to request Saudi coke for February.
One major risk to the high-sulphur market remains as
Chinese officials have yet to clarify an upcoming law banning “unqualified” coke in the country. The lack of clarity on
the law that is meant to take effect in less than a month has
led some in the country to say that it will be pushed back to
2017, while others are still expecting a 5pc sulphur or even a
3pc sulphur limit. In the meantime, Chinese importers have
adopted a wait-and-see attitude, and many do not plan to take
fresh cargoes until the ban is official. US 6.5pc sulphur coke
was offered at $50/t cfr China, but attracted no buying interest. Even domestic 6.5pc coke is facing a challenging market,
with Sinopec heard selling this grade at 450-460 yuan/t. It is
expected that the state-owned refiner will reduce production
of 6.5pc sulphur coke as China’s government tightens emissions
restrictions.
US west coast coke prices declined on the lack of interest
from Asia-Pacific buyers. A tender for low-sulphur coke is set
to close at the end of this week, but participants expect bids
to be significantly lower than the previous cargo as Chinese
buyers have healthy stocks of low-sulphur and are beginning
to question the ban. If the government does not limit coke to
3pc or less as of 1 January, stockpiled 2pc coke will decline in
value.
Coal-implied forward curves
1Q16
2Q16
3Q16
USGC 4.5% petroleum coke
36.00
36.32
36.65
USGC 6.5% petroleum coke
24.00
24.22
24.43
cif ARA 4.5% petroleum coke
47.00
45.24
45.24
cif ARA 6.5% petroleum coke
35.00
33.69
33.69
4Q16
45.19
33.65
Monthly indexes: October
Fuel-grade coke calendar month indexes
$/t
HGI
Mid
4.5% sulphur
40
40.00
52.00
46.00
4.5% sulphur
70
40.00
53.00
46.50
6.5% sulphur
40
24.00
31.00
27.50
6.5% sulphur
70
24.00
32.00
28.00
70
42.00
53.00
47.50
40
4.00
22.00
13.00
<2.0% sulphur
45
68.00
73.00
70.50
3.0% sulphur
45
60.00
64.00
62.00
4.5% sulphur
45
51.00
59.00
55.00
70
58.00
65.00
61.50
fob Venezuela
4.5% sulphur
fob US midcontinent, Chicago area
6.0% sulphur
fob US west coast
cfr Turkey
4.5% sulphur
cfr India
4.5% sulphur
40
55.00
60.00
57.50
4.5% sulphur
70
57.00
61.00
59.00
6.5% sulphur
40
49.50
58.00
53.75
6.5% sulphur
70
52.00
58.50
55.25
cfr China
3.0% sulphur
45
82.00
84.00
83.00
4.5% sulphur
45
72.00
74.00
73.00
6.5% sulphur
40
53.00
62.00
57.50
HGI
Low
High
Mid
58.75
Calculated coke indexes
$/t
Delivered NWE-ARA
4.5% sulphur
40
52.75
64.75
4.5% sulphur
70
52.75
65.75
59.25
6.5% sulphur
40
36.75
43.75
40.25
6.5% sulphur
70
36.75
44.75
40.75
Delivered Spanish Med
4.5% sulphur
40
54.25
66.25
60.25
4.5% sulphur
70
54.25
67.25
60.75
6.5% sulphur
40
38.25
45.25
41.75
6.5% sulphur
70
38.25
46.25
42.25
56.75
Delivered Brazil
4.5% sulphur
40
50.75
62.75
4.5% sulphur
70
50.75
63.75
57.25
$/t
6.5% sulphur
40
34.75
41.75
38.25
70
34.75
42.75
38.75
2017
2018
6.5% sulphur
36.48
37.78
39.39
Anode-grade coke calendar month indexes
24.32
25.18
26.26
45.64
44.59
44.64
33.20
High
fob US Gulf coast
2016
33.99
Low
33.24
calculated based on fob US Gulf plus freight assessment to destination
$/t
Low
High
Mid
cif green, 0.8% sulphur
220.00
230.00
225.00
cif green, 2% sulphur
176.00
186.00
181.00
cif green, 3% sulphur
111.00
123.00
117.00
fob calcined, 3% sulphur
305.00
315.00
310.00
Page 2 of 18
Weekly petroleum coke price snapshot
$/t
Delivered northwest Europe
fob US Gulf coast
4.5% sulphur
36.00
6.5% sulphur
24.00
4.5% sulphur
47.00
6.5% sulphur
35.00
Delivered Japan
3.0% sulphur
67.00
4.5% sulphur
60.00
cfr China
fob Venezuela
4.5% sulphur
fob US west coast
<2.0% sulphur
72.00
3.0% sulphur
56.00
4.5% sulphur
49.00
6.5% sulphur
39.00
48.00
cfr India
6.5% sulphur
45.50
Turkey
Delivered Brazil
4.5% sulphur
45.00
6.5% sulphur
33.00
cfr 4.5% sulphur
50.00
del 6.5% sulphur
34.75
News
Chinese importers focus on lower-sulphur coke
Almost 50pc of China’s green petroleum coke imports in October contained less than 3pc sulphur, the highest proportion
since September 2011 as concerns have built over potential
new import restrictions.
China imported 416,400t of green coke in October, the lowest level in five months, according to Chinese customs data. Of
this, 205,400t was categorized as less than 3pc sulphur, with
most of this amount — 199,500t — originating in the US. Small
shipments came from South Africa and Russia.
Chinese green coke imports, Oct 15
Country
>3% sulphur
India
Taiwan
<3% sulphur
Total
’000t
Imports
38.500
39.261
US
133.393
Total
211.154
Russia
1.238
South Africa
4.497
US
199.509
Total
205.244
416.398
This is a higher proportion of low-sulphur coke than the
country has typically imported over the past five years. The
October percentage of 49.3pc compares with a five-year average of 18.8pc and just 13.1pc on average in 2014.
Some of the increase in low-sulphur coke imports could
be a result of growing Chinese aluminium production. Other
industries, like glass, cement and steel, are in a slowdown.
Aluminium production requires low-sulphur anode-grade coke,
of which China has historically been a large producer. But as
sulphur content in coke from Chinese refineries has increased
and domestic aluminium production has risen, Chinese smelters have been looking outside the country for anode-grade
coke supply.
A larger factor is the law passed at the end of August that
limits the import and use of “unqualified” petroleum coke as
of 1 January. The government has yet to clarify the specifications that will be considered qualified, but many have said the
Chinese customs standards that break coke into less than 3pc
sulphur and “other” suggest that the limit could be as low as
3pc. Buyers have walked away in recent weeks from discussions for anything above 2pc sulphur, preferring to wait for
more clarity while demand is weak.
Page 3 of 18
cfr India: 4.5% vs. 6.5% coke
110
cfr India 4.5%
$/t
cfr India 6.5%
US export coal: USEC vs USGC
80
100
Marmara
$/t
ARA
70
90
60
80
--
70
--
50
60
40
50
40
5 Nov 14
11 Mar 15
8 Jul 15
11 Nov 15
There are still doubts over the law’s implementation.
There has been growing talk over the past couple of weeks
that the restrictions could be delayed until 2017, as the official
silence drags into the final month of 2015. This may mean
that some Chinese buyers will come back into the market for
higher-sulphur grades. But most likely buyers will remain cau-
Chinese low-sulphur coke imports
’000t
Total green
coke
<3% sulphur
coke
<3% sulphur %
of total
49.3
Oct 15
416.398
205.244
Sep 15
520.483
46.420
8.9
Aug 15
505.271
144.626
28.6
Jul 15
624.419
219.178
35.1
Jun 15
612.112
53.488
8.7
May 15
350.262
35.067
10.0
Apr 15
519.423
80.781
15.6
Mar 15
542.742
137.939
25.4
Feb 15
371.289
114.884
30.9
Jan 15
460.556
40.104
8.7
Dec 14
319.471
10.338
3.2
Nov 14
159.400
8.756
5.5
Oct 14
410.851
81.656
19.9
Sep 14
410.521
38.206
9.3
Aug 14
81.844
0.103
0.1
Jul 14
322.904
22.512
7.0
Jun 14
505.598
77.492
15.3
May 14
813.509
89.074
10.9
Apr 14
710.590
199.703
28.1
Mar 14
337.173
73.342
21.8
Feb 14
412.394
76.496
18.5
Jan 14
846.063
148.641
17.6
30
8 Dec 14
9 Apr 15
5 Aug 15
2 Dec 15
tious through this year because industrial demand for coke in
China is still anemic and stocks at major coastal ports are seen
above 1mn t.
Turkish coke imports jump in October
Turkish petroleum coke imports rose by 90pc year on year in
October, bringing total imports in January-October close to a
year earlier.
Imports were significantly up on the month at nearly
600,000t — the highest monthly increase this year. This rise
helped balance the year’s total imports to date, after shipments were down by 16pc and 61pc on the year, respectively,
in August and September.
Turkey imported 3.55mn t of coke in January-October, in
line with last year’s 3.57mn t.
The main exporter to Turkey remains the US, with 2.68mn
t of coke received in the first 10 months of the year, consistent
with last year’s 2.62mn t. Turkey received 401,000t of US coke
in October, along with 111,000t of Venezuelan material and
88,000t of Spanish coke.
Cement makers are increasing the share of coke in their
fuel mix, but market participants expect imports to remain
flat year on year as cement and clinker exports soften. Domestic cement and clinker demand in October was also weaker
than in the spring, but political instability has dissipated since
elections early this month, so construction should rebound.
Turkey exported just more than 19,000t of coke in October,
down from 24,600t in September. Albania, Israel and Greece
received 7,650t, 5,830t and 5,820t, respectively. Greece and
Albania were the largest customers so far this year, with 32pc
Page 4 of 18
US Gulf and midcontinent coker yields
600
US Gulf coker yield
$/t
Aluminium premiums
US midcontinent coker yield
600.0
US midwest
$/t
Japan
Europe, duty paid
500.0
500
400.0
400
--
300.0
200.0
300
100.0
200
29 Aug 14
6 Feb 15
2 Jul 15
LME aluminium prices
1,700
cash
0.0
9 May 14
25 Nov 15
$/t
24 Apr 15
LME aluminium warehouse stocks
20 Nov 15
mn t
3 month
3.5
1,650
3.4
1,600
3.3
3.2
--
1,550
--
3.1
1,500
3.0
1,450
1,400
04 Sep 15
24 Oct 14
2.9
05 Oct 15
03 Nov 15
and 29pc of total shipments. Turkey did not export any coke
prior to this August, so the material is likely from the country’s
first coker at Tupras’ 227,000 b/d Izmit refinery.
Cement makers in Turkey are still unable to use this coke
domestically because there are no official guidelines regulating
its consumption. In the meantime, refiner Tupras, constrained
by lack of stockpiling space, sells the coke at monthly tenders
to traders and one cement maker.
The coke has been sold in the Mediterranean region, where
it has been blended with US coke. But it was offered into India
last week with little interest, according to market participants.
Despite low freight rates, costs to cross the Suez Canal and
cheap competition from Saudi Arabian material prevent this
coke from being particularly attractive to Indian buyers.
2.8
15 Jul 15
02 Dec 15
01 Sep 15
16 Oct 15
02 Dec 15
Japan’s coke imports fall in October
Japan’s imports of fuel-grade petroleum coke in October
dropped by 5.7pc from a year earlier to 315,241t, as Japanese
buyers cut purchases from the US.
Supplies from the US fell by 16.4pc to 277,300t, which outstripped increased imports from China, according to finance
ministry data. Japan bought 37,900t of coke from China compared with only 2,650t a year earlier.
Reduced operations at cement and steel producers, the
main coke users in Japan, resulted in the weaker imports.
The country’s cement output dropped by 8.4pc against a year
earlier to 4.8mn t in September, when most coke cargoes were
traded for October delivery. Steel production fell for the 13th
consecutive month in September, down by 7.3pc to 8.6mn t.
Japan’s coke import costs averaged $104.55/t on a deliv-
Page 5 of 18
ered basis in October, down by 11.1pc from the same month
last year. The average yen-denominated import cost in
October was ¥12,545/t, lower by 1.4pc compared with a year
earlier.
Japan’s thermal coal imports, on other hand, edged up by
1.3pc in October from 2014, underpinned by higher receipts
from Russia and Indonesia.Imports rose by 117,000t to 9.41mn
t over the period, but were 451,000t lower than September’s
9.87mn t, finance ministry data show.
The year-on-year rise was mainly driven by higher shipments from Russia, which rose by 37pc to 1.19mn t. Japan’s
imports of Indonesian thermal coal increased by 36.5pc to
1.1mn t over the same period. Russia has now moved ahead of
Indonesia as Japan’s second-largest supplier for three consecutive months.
Australia remained Japan’s largest supplier in October, but
its shipments fell by 2.1pc to 6.9mn t from 7.05mn t a year
earlier. Australia has ramped up deliveries to Japan this year,
despite the slight fall in October, with its exports rising by
5.9pc from a year earlier to 71.17mn t during January-October.
Australia expanded its share of Japan’s import market to
75.4pc from 73.3pc over the period.
More competitive spot prices of Russian bituminous coal
have boosted its attractiveness to Japanese buyers over Australian and Indonesian coal. The spot price of 6,000 kcal/kg
fob Vostochny coal has slumped by 21.1pc this year to $53.50/t
as of 20 November. The decline has been less steep for Australian and Indonesian products, with prices of 6,000 kcal/kg
fob Newcastle coal and slightly higher-grade 6,200 kcal/kg fob
Kalimantan coal down by 16.1pc and 11.2pc, respectively, over
the same period.
Russian producers have been eyeing large northeast Asian
coal consumers as alternative destinations for coal that has
traditionally headed to Europe. This drive appears to finally be
meeting with success as Russia takes a slightly larger share of
markets in Japan, South Korea and Taiwan this year.
The rise in Japan’s October imports from Russia lifted total
Japanese receipts of Russian coal to 8.85mn t in January-October, up by 4.8pc from 8.45mn t in the same period last year.
Russia’s share of Japan’s imports edged up to 9.4pc in the first
10 months of this year from 9.2pc in the year-earlier period.
But October’s increase may be short-lived, as Japanese utilities tend to buy less Russian coal during the winter months.
Japan’s coal demand may be hit as nuclear reactors
start to come back on line. Utility Kyushu Electric Power has
restarted its 1,780MW Sendai nuclear plant in southern Ka-
goshima prefecture, resuming operations at the No. 2 reactor
on 15 October and the No. 1 unit in August. The units generated 0.84TWh last month. The unit had been closed since
September 2011 for inspections and reinforcement work to
meet stricter safety standards imposed after the March 2011
Fukushima nuclear meltdown.
Japan’s base-load coal-fired generation remained robust in
the run-up to the reactor restart. The country’s 10 main utilities consumed 4.98mn t of coal in October, 4.4pc higher than
a year earlier, data from Japan’s federation of electric power
companies (FEPC) show.
Japan paid an average of $73.68/t for its thermal coal imports in October, down by 21.1pc from the average of $93.35/t
in October 2014.
The country received 6.09mn t of coking coal and 435,000t
of anthracite last month, taking total coal imports to 15.94mn
t in October.
Regulators approve ExxonMobil Torrance restart
California regulators have approved ExxonMobil’s plans to repair and restart refining equipment that exploded last February, the latest step toward the return of a major state gasoline
producer and the oil major’s exit from the state's refining
business.
The California Department of Industrial Relations (Cal/
OSHA) last week approved ExxonMobil to restart pollution
control and gasoline-producing units at its 155,000 b/d refinery
in Torrance, California.
Both units were shut on 18 February when an explosion
ripped through an electrostatic precipitator and left a fluid
catalytic cracking (FCC) unit without the emissions control
equipment needed to operate. The market expects ExxonMobil to restore the units roughly a year later, in February,
although ExxonMobil has not confirmed such a target.
“We support Cal/OSHA’s decision and continue to work
cooperatively with all agencies toward approval of a restart
plan, but cannot speculate on a timeline,” refinery official
Gesuina Paras said on 30 November.
ExxonMobil must still gain South Coast Air Quality Management District approval for a restart.
The company must complete repairs before closing a
planned sale of the facility to US independent refiner PBF Energy, part of that company’s bid to swiftly spread to all three
major US coastal markets by mid-2016.
Torrance’s outage roiled the west coast market all year.
The loss of a major source of California’s boutique gasoline
Page 6 of 18
blend tightened supplies in the Los Angeles area and helped
push spot prices to a $1.20/USG premium to the US gasoline
benchmark in July. It also tightened supply of the low-sulphur
US west coast petroleum coke that has been in higher demand
late this year as Chinese buyers eye potential upcoming import
restricitons on higher-sulphur coke.
Operators told investigators after the accident that equipment used to monitor pressure in the FCC had not worked
properly for a decade, Cal/OSHA said in August. Emergency
crews were aware of a leaking valve inside the FCC at the time
of the explosion, according to the investigation.
The agency said that 3,000 hours of inspection work, as
well as updated operating procedures, training records and
design modifications, led to the restart approval.
“ExxonMobil now has a green light from Cal/OSHA to
operate the electrostatic precipitator once it is repaired and
installed,” Cal-OSHA said.
JEA seeks coke, considers CFB startup
Florida power generator JEA is seeking bids for up to 280,000
short tons (254,000t) of petroleum coke for delivery this
spring.
The utility is requesting two 35,000t vessels/month for
April, May and June and one or two vessels in March. The
company is considering whether to start up its second cokeburning circulating fluidized bed (CFB) boiler in mid-December,
which would require it to take the additional vessel in midMarch.
The utility contracted its first quarter coke supply, including two vessels for March delivery, at the beginning of October. It received bids for this supply in September, just as the
US Gulf coke market was beginning to sharply decline. Now,
with US Gulf 6.5pc sulphur prices hovering in the low-to-mid
$20s/t, high-sulphur coke costs less than $1/mmBtu on an fob
US Gulf basis compared with delivered Illinois-basin coal prices
that are hovering steadily around $2.20-2.30/mmBtu. The low
price of coke on a heat-adjusted basis is likely a major factor
driving the company to consider increasing the proportion of
coke in its fuel mix with the startup of its second CFB.
The company is looking for coke with a maximum of 6.5pc
sulphur, 25-80 HGI, minimum of 13,000 Btu/lb heat content
and maximum 14pc volatile matter, 10pc moisture and 1pc
ash. The contract includes a sulphur adjustment, with a penalty to the seller if the sulphur content of the product as-received is higher than guaranteed and a premium if it is below
guaranteed levels.
The utility is also specifying that it will absorb any fuel surcharge adjustment related to the coke’s domestic transport.
With the decline in oil prices, some transport contracts may
contain clauses specifying a negative fuel surcharge. In order
to fully evaluate the bids on an equal basis, it needs to take
these surcharges into account, JEA said.
Bids are due by 1pm ET on 11 December, with a successful
bidder to be notified by 2pm ET on 18 December. Questions
may be directed to Mike Crosse at 904-665-8308 or Jim Myers
at 904-665-6224.
European coal prices lowest in 12 years
European coal prices stumbled as spot demand for December
cargoes evaporated, with today’s cif Amsterdam-RotterdamAntwerp (ARA) prompt 90 days coal price hitting a 12-year low.
Prices fell to $49.69/t, the lowest mark since 2 October
2003, the last time the price was below $50/t.
The price first fell heavily on 23 November, when it
dropped by $1.66/t from the previous session to $52.45/t and
continued to edge lower.
Demand was slow but stable in recent weeks, with signs
that a railing restriction on one of Colombia’s two key coal
railways had led to a reduction in production and exports at
two major producers. This lent support to prices, which had
hit 10-year lows last month.
But Colombia’s Cesar provincial court on 25 November
lifted a suspension on Fenoco’s overnight railings. The ban —
which had been in place since 13 February, after the Bosconia
community filed charges relating to noise pollution — prevented around 15,000t/d of coal from reaching the export market
in the past few months.
The news has pressured prices, even though there remains
a risk that the suspension could be reinstated, after residents
of the Zona Bananera municipality in Magdalena province filed
a complaint with Colombia's constitutional court. The court
has yet to rule on the proceedings.
Physical prices for January are also under pressure on
expectations that first quarter demand will weaken, with gas
increasingly pricing coal out of the UK generation mix.
Daily prices for South African 6,000 kcal/kg coal slipped
from near five-month highs, as demand for very prompt cargoes faded. The fob Richards Bay (RB) price had climbed to
$58.71/t by 20 November, the highest since 1 July, as a producer-trader, short of RB1 tonnage, sought to pick up Decemberloading cargoes on the spot market. But the price has since
slipped to $53.34/t, the lowest since 10 November, after price
Page 7 of 18
inflation was punctured by an absence of bids for Decemberloading cargoes and then December rolled out of the assessment window, with markets looking to early next year.
South African loadings for December are expected to reach
around 7mn t. Inventories at Richards Bay Coal Terminal have
slipped to around 4mn t from 4.8mn t in mid-October.
State-owned Transnet is expected to rail an average of
6.6mn t/month in the fourth quarter, implying that producers
and traders are drawing down stocks to meet demand.
India’s Krishnapatnam port handles backlog
India’s southeast Krishnapatnam port had resumed operations by the end of last week, after heavy rains and flooding
forced the terminal to shut for almost two weeks.
The port restarted some activities on 23 November and is
fully operational. But schedules remained delayed as the port
contended with a backlog of vessels totalling nearly 400,000t
of coal. Roughly 920,000t of petroleum coke was received
through Krishnapatnam port in January-October, according to
shipping lineups.
National highway 5, which connects Krishnapatnam to
Chennai and Kolkata, was still being repaired, but railway
routes passing Nellore district, where the port is located, have
been completely restored.
The states of Andhra Pradesh and Tamil Nadu experienced
torrential rains for two weeks from 9 November, which led to
the flooding.
Climatologists believe that the El Nino weather phenomenon is the reason behind heavy rains in south India this year.
India’s Konkan Railway plans coal freight line
Indian state-controlled rail operator Konkan Railway plans to
build a 103km freight line in western India to boost coal deliveries to inland users.
The company’s proposed Chiplun-Karad line will carry as
much as 5mn-6mn t/yr of coal in 2018, as part of 14.9mn t/
yr of freight capacity that will also increase deliveries of coke
and fertilisers from western Indian ports, a Konkan Railway
official said. Konkan Railway plans to complete the line, which
will go to Maharashtra state’s Karad municipality from Chiplun
on the Vashishti river, by 2018. It aims to increase total capacity to 43.2mn t/yr by 2033. The company expects to transport
primarily thermal coal for power generation and cement
plants.
The new line to Karad will enable further connections
along existing freight lines to towns across Maharashtra and
Karnataka states. The development could speed up delivery
of coal from the west coast, compared with distances greater
than 500km for coal delivered to Karad from Mumbai, Karnataka’s New Mangalore or Goa state’s Madgaon port, the company
said.
But the improvements in delivery are nevertheless contingent on several developments that have not been completed.
The project developers intend to deliver coal from nearby
ports including Maharashtra’s Dighi, but construction is not
finished. The line has received approval from the country’s
railways ministry, but the company will still need environmental approvals to build through protected regions. Konkan
Railways operates 760km of railways across the western coast,
partially through forested regions, giving it a strong track
record in securing environmental clearances.
The project will receive support from the Maharashtra
government, which will take a 50pc ownership stake in the
project. Konkan Railways will hold 26pc, while private companies will contribute the rest.
Coal India misses November delivery target
State-controlled mining firm Coal India’s (CIL) deliveries to
consumers fell short of target in November, as output remained below target for the seventh consecutive month.
The country’s largest mining firm delivered 45.33mn t to
buyers in November — up by 3.76mn t from the same month
a year earlier, but 830,000t short of its target, it said on 1
December in a filing to the Bombay Stock Exchange. This was
the first delivery shortfall in four months, after the company
exceeded its targets in August-October.
CIL’s deliveries fell short of target just as the country’s
coal-fired power generation also slipped below a governmentset goal for the month. November’s coal-fired generation
amounted to 2.34TWh — lower by around 5pc than target
— after coal-fired power plants exceed their goals by 4pc in
October and 7pc in September, according to the Central Electricity Authority.
Separately, the company missed its monthly production
target for the seventh month in a row, although it has consistently ramped up output since January. CIL produced 47.47mn
t in November — the highest level since March and up by
3.05mn t from a year earlier. But this production level was still
2.2mn t short of its state-set target.
CIL’s shortfalls from production targets since April put it off
course to meet its goal of producing 550mn t in the financial
year running from 1 April 2015 to 31 March 2016. Output was
Page 8 of 18
11.04mn t short of a total 332.41mn t target for April-November.
India’s second largest coal mining firm, Singareni Collieries,
increased its output by 710,000t on the year in November to
5.28mn t. Its cumulative production since April has amounted
to 37.5mn t — 7.35mn t higher than a year earlier. Its dispatches to users rose by 4.61mn t to 38.1mn t.
South African rand falls to new low against dollar
The South African rand fell to an all-time low against the US
dollar after reports of a higher-than-expected October trade
deficit caused by a drop in exports.
The exchange rate reached almost 14.49 rand to the dollar
towards the end of the trading day on 30 November. It has
since recovered slightly, reaching about $14.32 at points of
today’s trading, but is still at historic lows.
The county’s trade deficit for October came out on the last
day of November at R21.39bn (around $1.5bn) with exports
falling by 6pc from September to R86.3bn and imports climbing
by 15.7pc to R107.7bn. The deficit was $1.26bn in September
and analysts had expected a much lower number in October.
The fall in the local currency benefits South African exporters who price commodities in dollars but register costs in
rand, meaning there is a greater incentive for coal producers
to push supply into the global market.
Century Aluminum power proposal rejected
South Carolina electricity provider Santee Cooper rejected a
Century Aluminum plan to purchase all of its power from an
unidentified third-party provider and use Cooper’s lines to
transmit the power to the company’s Mt. Holly smelter.
Under the current agreement Century Aluminum purchases
75pc of its power from another provider and 25pc from Santee
Cooper. Power from both providers is carried on lines owned
by Santee Cooper.
Century Aluminum’s proposed agreement is “unfair” and
would increase rates for other electricity customers, Santee
Cooper said. Santee Cooper has saved Century more than
$130mn in electricity costs since 2012, the utility said. Century
did not reply to requests for comment.
Century said in October that it would idle the smelter by
the end of this year if it could not reach a favorable transmission agreement with the utility. Layoff notices were sent to
600 employees at the facility.
The Mt. Holly smelter can produce 224,000t/yr of primary
aluminium, a higher capacity than the 130,000t/yr Massena
West smelter in New York state that Alcoa said last week
would not be idled.
Century and Alcoa both announced curtailments in the
second half of this year. Century will close one of the three
potlines at its Sebree, Kentucky, smelter by the end of December and permanently shuttered its Ravenswood, West Virginia,
smelter in July, which was idled in 2009.
After idling its Intalco and Wenatchee smelters in Washington state, Alcoa’s total aluminum smelting capacity will fall by
373,000t/yr.
Dec Mars/LLS discount narrows by $1.10/bl
The December Mars crude discount to Light Louisiana Sweet
(LLS) ended the trade month about $1.10/bl narrower than in
November with the support of higher medium sour demand
and the contango market structure providing incentive to store
crude.
The Mars discount to LLS finished the trade month around
$4.60-$4.65/bl on average, returning to where it was in September.
Refiners have seen better margins for medium sour crudes
than for lighter grades, leading to more demand for Mars.
Some refinery maintenance has been completed recently as
well, providing further support to the heavier grades.
Additionally a wide contango market is encouraging storage. The Louisiana Offshore Oil Port (LOOP) Sour storage
cavern that started operating in May has added more medium
sour storage capacity for companies but without longer-term
storage commitments.
Crudes acceptable into LOOP Sour storage are US Gulf
medium sours Mars and Poseidon, as well as Middle Eastern
grades Arab Medium, Basrah Light and Kuwaiti crude. Storage
is sold as futures contracts and physical forward agreements
in a monthly auction, as well as bilaterally, in 1,000 bl volumes
for a month.
An increase in heavier, sour crudes generally increases
the production of high-sulphur petroleum coke on the US Gulf
coast. Narrower LLS/Mars spreads at some points in recent
months had encouraged refiners to run more of the light sweet
production, decreasing coke volumes and sulphur content. But
the return of heavier feedstocks at refineries should keep coke
supply available.
Light oil makes up 51pc of US output: EIA
More than half of crude output in the Lower 48 states in the
first nine months of 2015 was light oil, with an API gravity
Page 9 of 18
above 40°, according to the US Energy Information Administration (EIA).
About 51pc of production — or 4.5mn b/d — consisted of
light oil, the agency said.
The breakdown of crude output by API gravity, a measure
of the density of oil, is part of a new methodology used to calculate monthly production which includes a direct survey of oil
and gas producers in 15 states. The new data will give energy
analysts a better handle on issues related to production, such
as refinery inputs and utilization, crude trade and regional
pricing, EIA administrator Adam Sieminski said.
“Knowing more about the quality of domestic crude oil
production can help oil markets operate more efficiently,” he
said.
Nearly all of the growth in US output in recent years comes
from formations that produce light crude, including the Bakken
mostly in North Dakota, the Eagle Ford in south Texas and the
Permian basin in west Texas and southeastern New Mexico.
In North Dakota, 91pc of crude produced in the first nine
months of 2015 had an API gravity above 40°.
Other states have a greater variety of crude streams. Topproducing Texas has a broad distribution of oil quality, with
most ranging from medium gravity to light oil. In that state,
about 63pc of production in the first nine months of 2015 had
an API gravity above 40°.
US crude output was down slightly in September from the
previous month as producers pull back on drilling in light of
depressed oil prices.
Production in September averaged about 9.3mn b/d, a drop
of 20,000 b/d or 0.2pc from August, according to the EIA. The
drop was widely expected but is smaller than many analysts
expected.
Crude down amid resilient US output
Crude futures moved lower over the past week amid signs that
US production remains resilient despite falling rig counts.
Prompt month Nymex light, sweet crude futures settled
lower by $1.91/bl yesterday at $39.94/bl. WTI dropped by more
than 10pc in November.
The fall was partly prompted by US Energy Information
Administration data showing a smaller-than-expected drop in
the country’s production in September, holding flat in top-producing Texas and increasing by nearly 19pc from a year earlier
in the federal offshore Gulf of Mexico.
This was in spite of the US rig count falling by 13 last week
in its steepest decline in seven weeks, to 744, oilfield services
provider Baker Hughes said. That was the lowest since April
2002.
The market maintained a cautious stance ahead of producer group Opec’s meeting on 4 December in Vienna. The group
has so far sustained a strategy of prioritizing market share,
which the group adopted at the behest of Saudi Arabia a year
ago. There is a 75pc chance that Opec will not change its
stance at the meeting, said analysts at Tudor Pickering Holt.
US Federal Reserve chairwoman Janet Yellen is scheduled
to testify on 3 December before Congress on the domestic
economic outlook as the Fed weighs whether to raise interest
rates.
Vienna Opec meeting seeks to bridge divide
Opec will meet in Vienna on 4 December with the group split
over its decision a year ago to prioritise market share over
price support.
Those producers satisfied with the status quo will probably
prevail over those seeking an about-turn.
The meeting may produce a notional increase to Opec’s
30mn b/d agreed output level to accommodate production
from Indonesia, whose membership of the group is being
reactivated. Indonesia — a net crude importer — left Opec in
January 2009. But the group has not adhered to the 30mn b/d
output level since June 2014, Argus estimates. Opec produced
31.32mn b/d in January-October, more than 1.1mn b/d higher
than in the same period last year, with a rise in output from
Saudi Arabia and Iraq more than compensating for lower production in Libya. Iraqi output increased by 30pc in the year to
September, hitting a record high of 4.22mn b/d.
On 19 November, just days after oil prices fell to their
lowest since the great recession of 2009, Saudi Arabia’s oil
minister, Ali Naimi, spoke of the country’s “continued willingness and prompt, assiduous efforts to co-operate with all oil
producing and exporting countries from within and outside
Opec” — a reference to previous demands by Opec’s head that
producers outside the group join in a co-ordinated output cut
to support prices. But oil exporters such as Russia and Kazakhstan have demurred on a coordinated output cut with Opec,
making a policy shift on 4 December less likely.
Saudi Arabia and the core Mideast Gulf Opec members supporting the market share strategy point to slowing US production and expectations of falling non-Opec output elsewhere
next year as evidence to support their position. “The Opec
policy is the right one. … From next year the market will
change and we could see some improvement in the price,”
Page 10 of 18
UAE energy undersecretary Matar Hamed al-Neyadi said, echoing recent comments by the oil ministers of the UAE and Saudi
Arabia that oil prices will start to rise next year.
But sharp budgetary pressures from lower oil prices have
led several Opec producers to call for a policy rethink. “The
major players in the oil market should reach agreement on
production levels capable of enabling a sustainable recovery in
prices,” Algerian prime minister Abdelmalek Sellal said, adding
that an unregulated oil market is resulting in “extreme” and
“damaging” price fluctuations. Iraqi oil minister Adel Abdul
Mahdi spoke of the bearish oil market conditions on 21 November: “The market is awash with excess oil supplies… we hope
prices will increase in the beginning of 2016.”
Iran’s oil minister Bijan Namdar Zanganeh appears resigned
to a continuation of the market share strategy adopted a year
ago under strong pressure from Saudi Arabia and its allies.
“I am not so hopeful about solidarity and consensus over
market regulation in this organisation,” Zanganeh said. “Nine
members of Opec are on one side and four are on the other.”
The group of four likely refers to Saudi Arabia and its Mideast Gulf Arab allies, with Zanganeh suggesting they hold sway
over the interests of the other nine members — a tally that
includes Indonesia.
Iran continues to position itself as a proponent of Opec
output cuts as a mean of trying to raise prices, but aims to
boost its own exports with the forthcoming lifting of US and
EU sanctions. It squares this apparent contradiction with calls
for a return to a system of dividing an Opec ceiling between
member countries and restoring Iran to the share it had before
sanctions.
Project deferrals bullish for oil prices: TPH
Final investment decisions (FID) in about 150 oil and gas projects around the globe with up to 13mn b/d of potential liquids
output have either been delayed or put on hold, according to
an analysis by energy investment bank Tudor Pickering Holt
(TPH).
Those delays are “a bullish signal for medium term oil
prices,” TPH said. The projects have an associated 125bn bl of
oil equivalent (boe) of resource and combined plateau output
of 19mn b/d of oil equivalent (boe/d).
The projects put on hold or delayed are out of 350 pre-FID
projects it tracks.
From large producers such as ExxonMobil and Chevron
to independents including Continental Resources and Hess,
all are hunkering down by cutting spending and pulling back
drilling plans to cope with a crude market weakness that has
lasted for more than a year. With prices down some 60pc from
2014 highs and a bleak outlook, companies are likely to make
further cuts heading into 2016.
The spending associated with the projects that have been
delayed or put on hold could have been about $125bn/yr over
the next five years “if we assume 50pc of the projects had
gone ahead at an average development cost of $10/boe,” TPH
said.
Oil sands constitute 25pc of the projects cancelled by resource size, with 3mn b/d output. Twenty liquefied natural gas
(LNG) projects, with 200mn t/y of output, would constitute
another 25pc of deferrals.
Mexico sets bid floors for onshore oil tender
Mexico’s finance ministry published the minimum pre-tax
profits bidders will be required to offer to the state in a 15
December auction for 25 onshore fields.
The minimum values vary from 1pc to 10pc.
The 25 mostly mature blocks include four larger fields —
Barcodón, in the northern state of Tamaulipas, and Tajón,
Cuichapa Poniente and Moloacán in the southwestern states
of Veracruz and Tabasco — and 21 smaller ones along the Gulf
coast.
This is the third auction in Mexico since the 2014 enactment of a ground-breaking energy reform that ended the
monopoly of state-run Pemex.
The historic, staggered licensing round kicked off last December with two shallow-water tenders in the Gulf of Mexico.
The blocks will be awarded based on two main criteria: the
percent of pre-tax profits offered to the state and a minimum
work commitment, established by oil regulator CNH.
According to a document published on the CNH website,
minimum work commitments vary from 4,600 to 8,700 working
units.
In an oil price scenario of less than $45/bl, each unit corresponds to $767, accounting for a total minimum investment
of $3.5mn-$6.7mn, depending on the blocks.
In October, Mexico’s crude export basket averaged $39.54/
bl, Pemex’s monthly output data shows.
Under the reform, the finance ministry is also entitled to
impose an additional investment commitment, but as in the
previous tender, the ministry set this at 0pc.
The licence-type contracts for the upcoming auction
vary from the previous production-sharing model and were
designed to attract independent Mexican firms, thanks to a
Page 11 of 18
lighter administrative burden and fiscal incentives.
In response to the current lower price environment, the
CNH and the finance ministry adopted additional contract
incentives last month, including fresh exploration rights and
more flexibility in the bidding requirements and contract
terms, encouraging bidders to bid for more than one block.
At least 60 firms have initiated the pre-qualification process, 36 of which are Mexican.
Large oil companies in the running include ExxonMobil,
Norway’s Statoil, China’s state-owned CNOOC and Sinopec, and
France’s Engie and Total.
Heads of state gather to hash out climate deal
The UN climate talks in Paris began on 30 November with over
150 heads of state delivering statements and China and the US
reaffirming their commitment to reaching a deal.
The heads of state from six governments — France, Chile,
Ethiopia, Germany, Mexico and Canada — called for a global
price on carbon pollution at the Conference of the Parties
(Cop 21).
China’s President Xi Jinping called on developed countries
to honour their commitments to provide financial support to
developing nations. The US, Germany, the UK and France were
among 11 countries to pledge nearly $250mn in finance to a
fund designed to help vulnerable countries address the issue.
US President Barack Obama and Xi reaffirmed commitments made in a joint statement in November last year, when
the US pledged to cut its emissions by 26-28pc from 2005
levels by 2025 and China said its emissions would peak by 2030
and it would establish a national cap-and-trade programme in
2017. Countries’ intended nationally determined contributions
(INDCs) will result in 6bn-11bn t/yr CO2 equivalent (CO2e) by
2025 and 15bn-20bn t/yr CO2e by 2030.
India, although opposing a long-term mitigation goal, has
made some strides toward a climate deal, a notable shift from
its past reluctance to co-operate in global efforts. The country
was one of 20 on 29 November to commit to doubling public
investment in clean energy research and development by 2020.
It pledged in its INDC to reduce greenhouse gas emissions per
unit of GDP by 33-35pc below 2005 levels by 2030. And it undertook to raise the share of non-fossil fuels in power generation to 40pc of installed capacity by 2030.
But many are sceptical of its stated goals. India’s greenhouse gas emissions will more than double to 5bn t of CO2e in
2040 from 2013, under the IEA’s World Energy Outlook policy
scenario. And the Paris pledges in general are not sufficient
for limiting the global temperature rise to 2°C by the end of
this century, rather resulting in a 2.7°C rise, “a tremendous
differential,” IEA executive director Fatih Birol said.
The world’s coal industry is under particular scrutiny. No
new coal plants can be built and some must be decommissioned if the 2˚C target is to be met, according to research
group Climate Action Tracker. And this is not to mention the
coalition of around 45 countries particularly vulnerable to climate change who are calling for an even tighter 1.5°C target.
The climate vulnerable forum wants the world to aim for a full
decarbonisation of its economy by 2050, with 100pc renewable
energy production by 2050.
A number of companies have added their voice to the
discussion, with a White House-led initiative gaining pledges
from 154 companies to make significant cuts in CO2 emissions,
including Rio Tinto. Banks Morgan Stanley and Wells Fargo put
out statements limiting their involvement in coal investments,
joining a growing list of private banks that are publicly committing to restricting coal project financing this year.
Industry associations also put out statements to coincide
with the talks, including those representing petroleum coke
users.
The European cement association, Cembureau, said that it
calls for a legally binding international climate change agreement, but one that provides a “level playing field.” It pointed
out that its region makes up only 3.8pc of the world’s cement
production compared with China’s 56.5pc, and its production
is already the most efficient. “The cement industry in Europe
is a world leader in substituting 38.7pc of fossil fuels used in
cement kilns with alternative fuels and aims to achieve a 60pc
alternative fuel use by 2050.”
“If the comparison shows an uneven playing field for a specific jurisdiction or sector, appropriate measures need to be
foreseen to ensure global competitiveness,” Cembureau said.
The US Aluminum Association and the Aluminium Association of Canada also stressed that their region’s production is
far more energy efficient compared with the much-larger capacity of China. The two groups put out a statement yesterday
asking their countries’ representatives to “press China to meet
its INDC commitments,” saying that aluminium production in
China is at least twice as carbon-intensive as North American
smelting and China’s rising production is offsetting the energy
efficiency efforts of its members. The association wants
the country to “commit to setting appropriate standards for
aluminium production emissions and coal usage, taking offline
production assets that do not meet those standards.”
Page 12 of 18
Amaral and Esteves deny any wrongdoing and have yet to
be formally charged. BTG Pactual says it will cooperate in any
investigation.
The unexpected arrests of Esteves and Amaral are the
most recent developments in a more than year-long investigation into systemic corruption at Petrobras, which has already
resulted in the arrest and conviction of major business leaders
and some former politicians.
Many others remain in police custody as prosecutors work
to piece together the details of an elaborate scheme that
diverted billions of dollars from inflated Petrobras’ contracts
to company executives, the PT, Brazil’s Democratic Movement
Party and other political allies.
The former chief executive of major Brazilian conglomerate Odebrecht, Marcelo Odebrecht, is among those now in
custody on allegations of corruption and fraud. Odebrecht is
alleged to have led a cartel of mainly Brazilian firms that overcharged Petrobras for downstream and midstream projects.
The company denies any wrongdoing and says it is cooperating
with investigations.
The fallout from the Petrobras probe has contributed to
Brazil’s deepening economic woes. The country’s economy is
expected to shrink by 3pc in 2015 and by 1pc in 2016, according to government estimates.
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Petrobras maelstrom takes down bank boss
The imprisoned chief executive and chairman of Brazilian
investment bank BTG Pactual has resigned, deepening the consequences of a corruption scandal rooted in state-controlled
Petrobras.
Last week, BTG Pactual head André Esteves and prominent
senator Delcídio do Amaral of Brazil’s ruling Workers Party
(PT) were taken into police custody on allegations of fraud and
obstruction of justice, opening a new chapter in the gargantuan case that has rocked Brazil since last year.
On 29 November, Brazil’s Supreme Court ruled to convert
Esteves’ temporary detention to an indefinite imprisonment.
The court said it found additional evidence of crimes during a
search of Esteves’ home last week.
BTG Pactual, one of Latin America’s most important private banks, is trying to shore up investor confidence amid a
plunge in its share price on Brazil’s stock exchange. New chairman Persio Arida has said the bank is not involved in Esteves’
alleged crimes and that it would sell some of the bank’s more
than R300bn ($78bn) in assets to bolster operations.
Last night, Marcelo Kalim and Roberto Balls Sallouti were
named joint chief executives to replace Esteves.
Moody’s downgrades Pemex ratings
Credit rating agency Moody’s has downgraded Mexico’s staterun Pemex’s global foreign currency and local currency ratings,
a move that raises the firm’s borrowing costs.
Moody’s cut the ratings to Baa1 from A3, and also reduced
Pemex’s baseline credit assessment to Ba3 from Ba1, asserting
that the firm’s credit metrics will continue to deteriorate in
the near to medium term.
“Moody’s believes that Pemex’s credit metrics will deteriorate further in the short to medium term as oil prices remain
depressed, production continues to drop, taxes remain high,
and the company’s capex needs are financed with debt,” the
agency said.
Pemex, which said it had been expecting Moody’s downgrade, has taken numerous measures to become more competitive and improve its finances since ground-breaking energy
reforms were passed last year.
Since the dismantling of its long-held monopoly, the firm
has sought private investment to help carry out its most costly
projects and has renegotiated the terms of pension liabilities
with its workers union.
Page 13 of 18
Panama Canal expansion may face delay
A $5.2bn project to expand the Panama Canal may face delays
as contractors work to “minimise impact on delivery” from
repair work at the new Pacific Locks.
The Panama Canal Authority (ACP) said repairs to the
damaged locks — in September stress testing revealed water
seepage — will be completed by mid-January 2016. But the
ACP said the GUPC consortium — the main contractor on the
project — has not set an updated completion date for the
expansion.
GUPC is holding talks with subcontractors and suppliers in
an effort to limit delays to the project, which was expected to
complete in April 2016.
Expansion will allow the passage of larger vessels that up
to now have not been able to transit the strategic waterway.
Owners delay a third of new dry bulk ships
Shipowners have postponed completion of a third of the dry
bulk ships expected to be delivered in 2015 as freight rates
keep revenues at historically low levels.
By mid-November, only about 48mn dwt had left shipyards
— including 4mn dwt postponed from 2014 — instead of the
66mn dwt that was expected to join the fleet over the period,
Braemar ACM Shipping senior dry cargo analyst Marc Pauchet
said.
Of these, the Capesize segment of the market is most
affected, with 25pc of 124 Capesize deliveries scheduled for
2015 postponed until 2016, Arrow Shipbrokers analyst Max
Benenson said.
Historically low dry bulk freight rates have kept shipowners’ revenues limited throughout 2015, with many vessels
earning close to or below their operating costs for much of
the year. Owners have delayed delivery of ships in the hope of
higher rates next year.
Despite an increase in vessels being scrapped, the lower
number of new ships entering the market has not prevented
low rates as there is still a significant number of available
ships competing for cargoes. But the large volume of available
tonnage has been highlighted as the main cause of the low
rates. As more newbuilds are delayed and more older ships are
scrapped, the competition among charterers will increase and
drive up rates.
For the Capesize segment, those vessels delayed from 2015
will now be delivered in 2016, which has expanded the orderbook to 162 ships — 10pc of the current fleet — which would
put significant pressure on freight rates.
But up to 30pc of Capesize vessels scheduled to deliver in
2016 will either slip into 2017 or not materialise at all, Benenson said. In addition, 50-80 Capesize ships could be scrapped,
which would mean the fleet would grow by just 64-94 ships —
4-6pc of the current fleet.
This net fleet growth will require a similar increase in
seaborne volumes of coal and iron ore — the main Capesize
cargoes — to keep the pressure off rates, but slowing demand
from China for these commodities is restricting seaborne
volumes.
Most Capesize ships will be in the 170,000-210,000 dwt
range, which would add 11.5mn-16.9mn dwt to the fleet at an
average size of 180,000 dwt.
Seaborne iron ore volumes grew by 117mn t to 1.34bn t in
2014 but will rise by only 79mn t to 1.42bn t in 2015, according
to Macquarie forecasts. But growth in 2016 is forecast to slow
further, rising by just 9mn t to 1.43bn t, when the new ships
are scheduled to enter the market.
Seaborne coal volumes have been limited in 2015 and
shipbroker Howe Robinson forecasts that volumes will drop by
43mn t to 1.18bn t in 2015. A fall in Chinese imports is likely to
keep levels limited in 2016.
A previous IEA forecast puts growth at 2.1pc, which would
only be an additional 25mn t. But other analysts consider this
too high and expect there to be no change to current volumes.
This means that the combined growth in iron ore and coal
volumes will be less than the expected growth in Capesize
ships and will keep rates under pressure throughout 2016,
despite a third of newbuilds pushing into 2017.
Pressure on coal barge rates remains
Barge rates for grain weakened again at the end of November
as limp grain demand lingered with no end in sight.
The rate to move grain declined in the week ended 24 November on the middle Mississippi river to $16.39/short ton and
to $7.58/st from St Louis, according to US Agriculture Department estimates.
Coal moving by barge is mostly limited to existing contract shipments. The only additional tonnage is coming from
operators willing to offer spot rates below the level agreed in
existing contracts.
Weak natural gas prices that make the fuel competitive
with coal in every region of the country are limiting utilities’
appetite for coal supply, with most content to wait out the
market until they see what their inventories are in the first
quarter of 2016.
Page 14 of 18
Inventories in most regions are above normal and some
market participants expect the supply overhang to last
through 2016 and even into 2017.
This will temper demand for coal transportation by barge
and rail and pressure operators to reopen contracts to better
align with spot market prices.
Participants in the grain and fertilizer markets are expecting prices to decline in the annual reopeners that will come
due this month as operators seek to lock in base traffic levels
to keep boats and experienced deck hands occupied in 2016.
It is unlikely that operators will benefit from higher traffic
over the next month as the end-of-year holiday slowdown and
efforts by customers to limit year-end inventories for tax purposes weigh on demand and possibly lead to extended holiday
shutdowns at some locations.
Markets slowed significantly last week ahead of the Thanksgiving holiday as transportation buyers took vacation time and
adjusted to having less volume to move.
Railroads have started to try to get more traffic by making
rate concessions, especially in the west as carriers try to keep
volumes away from barge lines and on rails for longer lengths
of haul.
US vehicle sales slow from peak
US retail sales of light vehicles held near a record pace in November while ending a four-month period of consecutive gains.
US light vehicle sales slowed in November to a seasonally
adjusted annualized pace of 18.19mn units, down by 0.3pc
from 18.24mn in October, as a recovering economy and nearrecord low lending rates have spurred purchases.
The rate of domestic vehicle sales edged down to 14.44mn
in November from 14.50mn in the previous month, as car sales
fell and truck sales increased, according to Autodata. Import
vehicle sales increased to 3.76mn from 3.74mn in the previous
month as increased truck sales offset car decreases.
The rate of total US light vehicle sales last month rose by
6pc from 17.13mn units in November 2004.
US manufacturing sector contracts
US manufacturing output contracted in November for the first
time since November 2012 amid a sluggish global economy,
while a strong US dollar continued to weigh on domestic manufacturers.
The US-based Institute for Supply Management (ISM), which
surveys manufacturers across 18 industrial segments, reported
that manufacturing activity fell to 48.6 from an October read-
ing of 50.1.
The contraction was the first since the end of 2012, ISM
said. Readings above 50 indicate expansion.
This comes amid a weaker Chinese and European economic
outlook, along with a strong US dollar. Lower oil prices have
also impacted demand for drilling, mining and production
equipment.
ISM reported that the production index registered 49.2, 3.7
points below the October reading of 52.9, while the employment index was 51.3, up on the October reading of 47.6.
The prices index registered 35.5, a fall of 3.5 points from
the month-earlier reading of 39, indicating lower raw materials
prices for the 13th consecutive month.
Industries that reported a contraction during November
included primary metals, petroleum and coal, appliances and
components, and fabricated metal products.
But industries reporting growth included non-metallic mineral products and transport equipment.
Asia’s coking coal price finds support at $80/t
Mining firms and Japanese steelmakers are likely to settle firstquarter benchmark prices for tier one coking coal above $80/t.
Coking coal producers are starting to meet with Japanese
steel firms this week for formal discussions on contract prices
for January-March. The fourth-quarter 2015 benchmark for
premium hard low-volatile coking coal settled at $89/t fob
Australia.
Offers from mining firms have yet to emerge, but officials
close to the negotiations expect offers to be made in the low$80s/t range, with the $80/t fob Australia level presenting an
obstacle for steelmakers.
“Suppliers are visiting us this week. We will have to see
what kind of number they put on the table, but we are expecting something in the low-$80s/t,” an official at a Japanese
steel producer said.
Negotiations could follow the pattern seen in recent
quarterly benchmark talks, where the contract price is settled
around $4/t above spot prices, bank Morgan Stanley said.
“Given current spot levels, we think the 1Q 2016 HCC (hard
coking coal) benchmark will settle somewhere between $80$83/t, down from the current benchmark of $89/t,” the bank
said.
Spot prices of first-tier coking coal averaged $79.10/t fob
Australia in October, but fell to $75.45/t in November.
“Data suggests that the average one month price before
the settlement is a good indication to determine the floor
Page 15 of 18
price for an upcoming contract, with the contract typically
settling at a $4/t premium,” Morgan Stanley said.
Contracts are likely to be settled within a three-week window, despite current spot prices being at a discount of around
$14/t to the previous benchmark.
“We do not think the negotiations will take too long this
time,” a Japan-based trader said. “When it comes to the endof-year negotiations, Christmas creates a firm deadline.”
China’s steel PMI falls to 7-year low
China’s steel sector purchasing manager’s index (PMI) fell to
its lowest level in nearly seven years in November, reflecting
increasing financial pressure on steel mills.
The November PMI fell by 5.2 points from October to 37,
according to the China Steel Logistics Professionals Committee. This is the lowest level since December 2008. The steel
production sub-index fell by 7.7 points to 35.4 in November.
Financial pressures are forcing steel companies in China to
cut production or halt output entirely, despite efforts by mills
to maintain operations, the committee said. Capacity shutdowns may accelerate this month as banks seek loan repayments ahead of the year-end, further squeezing cash flows.
China’s steel output rose by 2.8pc from 1-10 November
compared with the preceding 10 days, but output in November
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as a whole could still decline slightly from a month earlier, the
committee said.
Tangshan Songjeong has become the latest mill to halt
operations, shutting down all six of its blast furnaces on 13
November because of financial pressures. This takes total capacity shutdowns in Tangshan province to 15mn t/yr so far this
year. Several private-sector steel mills in Inner Mongolia are
also shutting down for the winter.
Heavy debt levels are combining with weak demand to put
pressure on Chinese mills. Total debts at the 101 large mills
that are members of the China iron and steel association (Cisa)
are around 3 trillion yuan ($470bn).
The new orders sub-index of the PMI fell by 8.2 points to
29.7 in November. And steel demand is likely to weaken further as traders are unwilling to build the typical “winter stockpile” of steel products this year because of a weak demand
outlook for 2016, the committee said.
Steel stocks at Cisa member companies increased by 1.5pc
in the 1-10 November period from the previous 10 days to
15.03mn t. Steel stocks held by traders in large cities were at
9.18mn t as of 27 November, down by 5.1pc from 31 October.
Raw material costs for steel mills also fell sharply in
November, with the purchasing price index dropping by 4.8
points to 24.6. Portside iron ore stocks rose by nearly 8mn t in
November, indicating an increase in supplies from the big four
mining firms amid weakening demand, which could lead to a
further fall in iron ore prices, the committee said.
China’s manufacturing PMI fell to 49.6 in November from
49.8 a month earlier. A reading below 50 indicates a contraction.
LME aluminium rallies on talk of China probe
London Metal Exchange (LME) copper and aluminium prices
rallied on 27 November, with trading volumes surging amid talk
of a potential probe by Chinese authorities of short-selling in
domestic commodity markets.
Aggressive short covering was seen on the Shanghai Futures
Exchange, followed by buying in London.
Three-month copper prices had fallen to $4,500/t on
Monday on a bout of speculative selling but by the end of last
week they settled at $4,620.50/t, down by only $25/t from a
week ago.
Prices were also supported by a proposal from China’s NonFerrous Metal Association that the government State Reserve
Bureau (SRB) should stock up on aluminium, nickel and minor
Page 16 of 18
metals. Although the proposal did not include copper, traders
argued that in 2009 the same agency bought 700,000t of copper in domestic and international markets because prices fell
to around $3,000/t. The purchase turned the copper market
around and prices went on to rally to $10,000/t two years
later.
On the Shanghai Futures Exchange around 10mn t of metal
traded on 26 November amid talk that Chinese authorities
could scrutinise short selling on the domestic market. Volumes
in London were also close to record high on the same day at
23,000 lots.
Three-month aluminium stood at $1,486.50/t, marginally
lower from $1,4871/t a week earlier as investors in Asia covered their short positions ahead of a potential investigation in
the market. Prices were further boosted by talk that that the
SRB might buy 300,000t of the metal despite the fact that this
is a small volume in the broader world market.
Refinery operations update
US Gulf coast
Trouble with a delayed coker increased flaring over the
weekend at Motiva’s 600,000 b/d refinery in Port Arthur, Texas. The refiner reported equipment failure increasing flaring
on 28 November, according to a filing to state environmental
regulators. The company, a joint venture of Shell and Saudi
Aramco, did not identify a start time for the malfunction, but
said emissions concluded by 4:40am ET.
Flaring amid planned maintenance reported yesterday involved work on a hydrotreater at Citgo’s 165,000 b/d refinery
in Corpus Christi, Texas. The refiner reported work on a Unibon unit, a hydrotreating process at the refinery, in a filing to
state environmental regulators. Citgo is the US refining subsidiary of Venezuelan oil firm PdV. A company representative has
not commented on the work.
US midcontinent
A coker malfunction increased flaring last week at Phillips
66’s 356,000 b/d joint venture Wood River refinery in Roxana,
Illinois. The refiner reported increased flaring beginning at
1:05am ET on 26 November, according to a filing to state hazardous materials monitors. Phillips 66 operates the refinery in
a joint venture with Canadian integrated firm Cenovus.
Phillips 66 briefly increased flaring on 27 November at its
147,000 b/d refinery in Borger, Texas. The refiner reported
increased flaring associated with hydrodesulphurization and
catalytic reforming units, with the cause under investigation.
Phillips 66 operates the refinery in a joint venture with Cana-
dian integrated firm Cenovus.
US east coast
PBF Energy reported an hour-long isobutane release on
29 November at its 190,000 b/d refinery in Delaware City,
Delaware. The refiner did not identify the cause or source of
the release, which began at 6:30pm ET, according to a filing
to state environmental regulators. Isobutane is a feedstock
for alkylation, a process that produces an octane-boosting
blendstock called alkylate.
US west coast
California regulators have approved ExxonMobil’s plans to
repair and restart refining equipment that exploded in February, the latest step toward both the return of a major state
gasoline producer and the oil major’s exit of the refining business there. The California Department of Industrial Relations
(Cal/OSHA) approved ExxonMobil to restart pollution control
and gasoline-producing units at its 155,000 b/d refinery in Torrance, California.
An unidentified malfunction yesterday forced the partial
evacuation of Tesoro’s 363,000 b/d Los Angeles refining complex in California. The refiner reported increased emissions
of hydrogen sulphide, a toxic and corrosive gas associated
with sulphur, according to a filing to state hazardous materials
monitors. The immediate vicinity was “evacuated by employees for a short time,” according to the filing. Tesoro has previously confirmed ongoing unplanned maintenance at the plant
stretching back into early November. A company representative could not be immediately reached for comment.
Latin America/Caribbean
Colombia’s state-controlled Ecopetrol carried out the first
products exports from its new 165,000 b/d Reficar refinery. Ecopetrol exported 200,000 bl of virgin naphtha to the
US East Coast and 50,000 bl of jet fuel to the Caribbean,
the company said, without specifying exact destinations or
buyers. Reficar, which started up in November, is currently
processing around 80,000 b/d and will reach full operational
capacity by March 2016.
A US bankruptcy court has approved the sale of the Hovensa oil terminal in the US Virgin Islands to Limetree Bay
Holdings, a unit of US private equity fund ArcLight Capital
Partners. The approved transaction includes an option to
acquire the mothballed 350,000 b/d Hovensa refinery, clearing a major hurdle to reviving the downstream complex on
the island of St Croix. But the fate of the transaction now lies
with the US Virgin Islands legislature, which must approve an
operating agreement. The legislature last December rejected
Page 17 of 18
an operating agreement with start-up firm Atlantic Basin Refining that intended to restart the refinery. Hovensa is owned
by US independent Hess subsidiary Hovic and Venezuelan
state-owned oil company PdV. Neither company commented
on the transaction. The refinery had a peak capacity of roughly 500,000 b/d and supplied the US Atlantic coast products
market. Much of the heavy crude that was processed at the
refinery came from Venezuela. But costly energy sources to
run the facility on the island eroded its bottom line, particularly in light of more competitive refineries on the US
Gulf coast with abundant gas supplies. The refinery reduced
capacity to 350,000 b/d in 2011 and shut completely in early
2012 after losing $1.3bn over three years.
India
Indian state-controlled refiner IOC will shut down parts of
its 210,000 b/d refinery at Chennai after heavy rain flooded
areas outside the complex. Chennai Petroleum (CPCL), which
operates three crude distillation units (CDUs) at the refinery,
may shut down one of its CDUs if the rain persists, a company official said. Submerged roads were already preventing
workers from reaching the site in southeast India’s Tamil Nadu
state. Chennai, which has suffered its heaviest rainfall in a
century, is flooded, with many area submerged. Coastal areas
of the state have also been badly hit.
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