TOP STORIES

MACRO NEWS

Europe Stocks Up on Optimistic German Economy Data

Japan Seeks to Strengthen 2015 Growth After Recession Hit

DRY

TANK

China bolsters economic ties with Australia

Unconventional Oil Projects Face Major

Challenges, Says IEAs Birol

China and Australia on Monday sealed a trade agreement

that significantly expands ties between Asias largest
economy and one of Washingtons closest allies in the
region. Separately, China said on Monday that it was
giving Australia more access to its capital markets and
allowing it to clear renminbi stock trades, measures that
would bolster Beijings efforts to free Chinese financial
markets and promote global use of its currency, the
renminbi. The trade deal will open up Chinese markets to
Australian farm and service-sector exports while easing
limits on Chinese investment in resource-rich Australia.

The International Energy Agencys chief economist said

Monday that Arctic, offshore and unconventional oil projects
are facing major challenges with the current international oil
prices at around $80 a barrel, and warned that oil companies
may revise spending downward, potentially hurting future
supply.
With the $80 [per barrel oil] price, a significant amount of
Arctic [projects], offshore projects and also some
unconventional oil projects are facing major challenges,
Fatih Birol told The Wall Street Journal in an interview.

nytimes.com

wsj.com

China steel, iron ore futures slide as home price

drop deepens

China to double LNG import terminals, boosting

shipments

Chinese iron ore and steel futures tumbled to record lows

on Tuesday after data showed a deepening decline in
China's home prices, the latest evidence of economic
weakness in the top consumer of both commodities.

The number of LNG import terminals in China will more than

double in the next 10 years, swelling vessel traffic hauling
cargoes from suppliers such as Qatar, Australia, Indonesia
and North America, according to China gas experts today.

China's home prices fell an annual 2.6 percent in October

despite a range of government support measures. It was
the steepest year-on-year fall since Reuters started
calculating nationwide prices in 2011. The losses in futures
could stretch iron ore's rout. The steelmaking ingredient is
at its weakest since 2009 and has fallen 44 percent this
year as big, low-cost miners such as Rio Tinto, BHP Billiton
and Vale boosted output amid slowing demand growth in
top importer China.

China has 11 LNG import terminals now, located along its

densely-populated eastern seaboard. It will need at least
more than 20 over the next 10 years to take increasing
volumes of imported LNG, according to ICIS senior China gas
analyst Ricky Wang. Chinas overall gas imports, which
includes LNG and pipeline imports, will increase by around
15% every year to 2019, said Ms Wang.
lloydslist.com

reuters.com

BALTIC DRY EARNINGS (1000$/day)

30

Capesize
Supramax

25

Panamax
Handysize

20
15
10
5
0
Feb. 14

Apr. 14

Jun. 14

Aug. 14

Oct. 14

BALTIC TANK EARNINGS (1000$/day)

70
60
50
40
30
20
10
0
-10
-20
Feb. 14

VLCC
Aframax

Apr. 14

Jun. 14

Suezmax
MR

Aug. 14

Oct. 14

jgresearch@grieg.no
www.griegshipbrokers.com

TOP STORIES
Tuesday, 18 November 2014

DRY STORIES
STEEL PRICES ($/t)
650

IRON ORE DYNAMICS CHINA (million ton/day)

CIS

US

China

110
100

600

90

550

80

500

70

Aug.14

Dec.14

40
Jan. 14

150
120

IMPORT
PRODUCTION

50
May.14

180

CFR CHINA (Right axis (USD/t))

60

450
400
Jan.14

210

INVENTORIES

May. 14

Aug. 14

90
60
30

0
Dec. 14

China bolsters economic ties with Australia

China and Australia on Monday sealed a trade agreement
that significantly expands ties between Asias largest
economy and one of Washingtons closest allies in the
region.
Separately, China said on Monday that it was giving
Australia more access to its capital markets and allowing
it to clear renminbi stock trades, measures that would
bolster Beijings efforts to free Chinese financial markets
and promote global use of its currency, the renminbi.
The trade deal will open up Chinese markets to Australian
farm and service-sector exports while easing limits on
Chinese investment in resource-rich Australia.
Prime Minister Tony Abbott and President Xi Jinping signed
a memorandum of understanding for the agreement at a
ceremony in Parliament in Canberra.
Mr. Abbott, who has also signed trade agreements in the
past year with Japan and South Korea, said of the
agreement, This has been a 10-year journey, but we have
finally made it.
Mr. Xi praised the deal in an address to Parliament,
pledging to deepen cooperation with Australia while
reaffirming Chinas willingness to resolve territorial
disputes with its neighbors through diplomatic means.
As long as we have our long-term and the larger interests
in mind, increase positive factors and remove obstacles, we
will certainly forge a closer and more comprehensive
strategic partnership between us, he said.
China is already Australias top trading partner, with
bilateral trade of around $130 billion in 2013.
Australia needs Chinas help in making the transition from
exports based on minerals like coal and iron ore to others
like food and agricultural products directed at Asias
growing middle class.
Paul Bloxham, an economist at HSBC, said in a research
note that the agreement should help to support Australias
great rebalancing act, from mining investment-led growth
towards the nonmining sectors of the economy.

Once the agreement is fully carried out, 95 percent of all

Australian exports will enjoy duty-free entry into China,
Australia said.
Washington and Beijing have competing visions for free
trade in the Asia-Pacific region, with the United States
pushing its 12-country Trans-Pacific Partnership pact, which
excludes China, and China promoting its Free Trade Area of
the Asia-Pacific framework.
In the trade agreement signed Monday, a 3 percent tariff
on coking coal, used in making steel, will be removed
immediately, and a 6 percent tariff on thermal coal, used to
power plants, will be lifted within two years for shipments
from Australia.
The agreement gives Australian dairy farmers tariff-free
access to Chinas lucrative market for infant formula within
four years, without the so-called safeguard caps that now
restrict competitors from New Zealand.
Australia has been marginalized from being a major
exporter to China in the last few years, one of the reasons
being that milk production has been going down over the
last decade, said Sandy Chen, a dairy analyst at Rabobank
in China.
Australias winemakers, which now sell more than $175
million worth of goods to China each year, will see tariffs
eliminated over four years. Dairy companies including
Bega Cheese and the Warrnambool Cheese and Butter
Factory Company, which is owned by Saputo of Canada
are probably among the greatest beneficiaries of the deal.
In the service sector, the main winners will be health care
providers like Japara Healthcare and the private hospital
operator Healthscope, as well as financial services
companies like the Australia and New Zealand Banking
Group and the Insurance Australia Group.
On the other side of the deal, private Chinese companies
will be able to make single investments of up to 1.078
billion Australian dollars, or $950 million, in Australia
without needing a review by the governments regulator.
The limit had been 248 million dollars.
Also Monday, the Chinese central bank announced that it
was allowing more access to its markets by giving

TOP STORIES
Australian investors the right to invest up to 50 billion
renminbi, or $8.2 billion, under the Qualified Foreign
Institutional Investor program. The program was created to
give foreign investors a way to use renminbi to buy Chinese
stocks and bonds.
Its making it much easier for Australian fund managers to
be able to access the domestic Chinese market, said
Andrew Whitford, general manager and country head for
greater China at Westpac Banking.
The Chinese central bank also said it was allowing
Australian banks to clear renminbi trades. Clearing banks

Tuesday, 18 November 2014

handle all parts of a currency transaction and in doing so

reduce the costs and time taken for each deal.
Xinhua, the state-run news agency, also said China was
improving the Australian central banks access to its
interbank bond market by increasing the central banks
investment quota to 10 billion renminbi.
Encouraging greater use of the renminbi globally is
important to the Chinese governments long-term plans of
reforming its economy and reducing its exposure to the
dollar.
nytimes.com

China steel, iron ore futures slide as home price drop deepens
Chinese iron ore and steel futures tumbled to record lows
on Tuesday after data showed a deepening decline in
China's home prices, the latest evidence of economic
weakness in the top consumer of both commodities.
China's home prices fell an annual 2.6 percent in October
despite a range of government support measures. It was
the steepest year-on-year fall since Reuters started
calculating nationwide prices in 2011.
The losses in futures could stretch iron ore's rout. The
steelmaking ingredient is at its weakest since 2009 and has
fallen 44 percent this year as big, low-cost miners such as
Rio Tinto, BHP Billiton and Vale boosted output amid
slowing demand growth in top importer China.
Iron ore for May delivery on the Dalian Commodity
Exchange fell 3.9 percent to close at its downside limit of
487 yuan ($80) a tonne, its weakest since the bourse
launched iron ore futures in October 2013.
The benchmark spot iron ore price .IO62-CNI=SI dropped
0.5 percent to $75.10 a tonne on Monday, the lowest level
since June 2009, according to data compiled by The Steel
Index.
A breach of the 500-yuan support level fueled more selling
on the Dalian contract, said a trader in China's eastern
Shandong province who trades Dalian iron ore futures and
predicts a further drop to 480 yuan before any recovery.

"The price has stayed around 500 yuan for about two
weeks and the level was finally broken today. People think
the market will fall further because supply is much more
than demand."
Citigroup last week forecast that iron ore could drop below
$60 per tonne in 2015 on renewed growth in supply and
further weakness in demand.
Stocks of imported iron ore at China's ports rose for a
second straight week to stand at 108.75 million tonnes last
week SH-TOT-IRONINV, based on data tracked by
SteelHome.
The rise in port stockpiles "raised concerns that underlying
consumption is weak," Australia and New Zealand Banking
Group said in a note.
"This was compounded by the rise in bad loans in China,
which could slow down investment growth even further."
Non-performing loans at Chinese banks rose 72.5 billion
yuan from the previous quarter to 766.9 billion yuan at the
end of September.
The slide in Dalian futures helped drag down rebar in
Shanghai which slid 3.1 percent to end at 2,442 yuan per
tonne, after hitting a record low of 2,431 yuan.
reuters.com

TANK STORIES
CRUDE OIL PRICES ($/bbl)

OPEC CRUDE PRODUCTION (million bbl / day)

TOP STORIES
Tuesday, 18 November 2014
120
34

BRENT

110
100

32

DUBAI

90

31

WTI

80
70
Mar. 14

OPEC capacity

33

30
29

May. 14

Jul. 14

Sep. 14

5/31/2014

2/28/2014

11/30/2013

Unconventional Oil Projects Face Major Challenges, Says IEAs Birol

The International Energy Agencys chief economist said
Monday that Arctic, offshore and unconventional oil
projects are facing major challenges with the current
international oil prices at around $80 a barrel, and warned
that oil companies may revise spending downward,
potentially hurting future supply.
With the $80 [per barrel oil] price, a significant amount of
Arctic [projects], offshore projects and also some
unconventional oil projects are facing major challenges,
Fatih Birol told The Wall Street Journal in an interview.
The IEA, the energy watchdog of the Organization for
Economic Cooperation and Development, has forecast oil
prices to remain low into next year unless global output is

cut. Lower prices could lead oil companies to review their

spending plans, Mr. Birol said, adding that he wouldnt be
surprised if companies made significant downward
revisions to their plans, which could hurt future production.
Prices for Brent, the key international benchmark, have
dropped around 30% since June amid slow demand growth
and higher U.S. output, and are currently trading near fouryear lows at below $80 a barrel.
The question is not that its today [at] $80, the question is
more how long it will be with us, and I expect that there
may be some continuation of downward pressure in the
prices for some time to come, Mr. Birol said.
wsj.com

China to double LNG import terminals, boosting shipments

The number of liquefied natural gas import terminals in
China will more than double in the next 10 years, swelling
vessel traffic hauling cargoes from suppliers such as Qatar,
Australia, Indonesia and North America, according to
China gas experts today.
China has 11 LNG import terminals now, located along its
densely-populated eastern seaboard.
It will need at least more than 20 over the next 10 years to
take increasing volumes of imported LNG, according to
ICIS senior China gas analyst Ricky Wang.
Chinas overall gas imports, which includes LNG and
pipeline imports, will increase by around 15% every year
to 2019, said Ms Wang.

The whole industry is going to develop in a very fast way,

she said.
New import terminal development is being helped by the
governments loosening of restrictions over which Chinese
companies are allowed to build terminals.
Now, following the governments more relaxed approach,
more state-owned and private companies are investing in
new LNG terminal infrastructure in China.
Some have a lack of experience in the LNG industry so will
require assistance, opening up opportunities for global LNG
traders and suppliers to work with China, said Ms Wang.
LNG is growing in popularity in China because the
government is trying to encourage its use in the

TOP STORIES
Tuesday, 18 November 2014
transportation sector, as a fuel for vehicles instead of more
polluting gasoline or diesel.
Theres clearly going to be a significant requirement for
more imports, said ICIS head of gas Ben Wetherall.
Chinese buyers have signed with suppliers to import more
than 50m tonnes per year of LNG to 2020.
China only started importing LNG in 2006, and its first
pipeline imports came in 2010.
Domestic conventional gas is Chinas largest source of gas,
followed by pipeline imports and then LNG imports.
Gas imports are expected to rise because domestic supply
is growing by only 5%-9% each year as older gas fields are
being exhausted and new ones are in the very early stages
of development.
However, LNG imports have significant competition from
the serious expansion of pipeline imports.
Challenges
A large Russia to China pipeline is being developed, to carry
east Siberian gas to China over decades.
In addition, the Myanmar gas pipeline started operating last
year and China continues to receive large piped volumes
from Turkmenistan.
The price that China wants to pay for imported gas is also a
serious issue for future LNG import development.
Piped gas from Russia will be cheaper than gas from most
other sources and therefore attractive.
What is clear is that any imports into China are going to
have to be price competitive, said Mr Wetherall.
The Russia-China pipeline is likely to have a significant
impact on future LNG supply deals to China because it
shows China can secure cheaper gas import deals, he said.

Exporters, such as Qatar, will have to rethink their pricing.

Qatari gas, shipped over the ocean as LNG, is currently the
most expensive gas China buys. Qatar is poised to negotiate
new supply contracts with China.
Other exporters and future exporters will have to think
about their prices when doing business with China,
including east Africa, North America, Australia and Russia.
This new price environment poses serious challenges for
exporters, said Mr Wetherall.
Another challenge is the fact that there is significant
uncertainty over what will happen after 2020.
If Chinas domestic shale gas industry is developed, post2020 could look shakier for LNG import growth.
A lot depends on domestic production and price reform,
said Mr Wetherall.
Nevertheless, Chinas import requirements in the
meantime are still an exciting prospect for the LNG industry
and LNG shipping, as vessels are hired to carry cargoes into
the import terminals dotted along the eastern seaboard.
Data from Lloyds List Intelligence shows the importance of
Chinese LNG imports to the shipping industry.
China was the third-biggest importer of LNG in the Pacific
Basin in October out of 11 importers, taking 3.3m cu m,
behind South Koreas 6.2m cu m and Japans 15.9m cu m,
according to Lloyds List Intelligence data.
The volume equates to 21 ships discharging cargoes into
China in October, compared with 42 into South Korea and
117 into Japan, the data shows.
In just eight years, China has managed to reach that level.
More import terminals will increase shipments further.
The growth rate is extremely fast, said Ms Wang.
lloydslist.com