US economy unexpectedly contracted in 1Q
The US economy contracted at a 1.4pc annual rate in the first quarter, the first decline since the Covid-19 pandemic caused a short, deep recession in the second quarter of 2020.
The first quarter contraction reflected decreases in private inventory investment — or inventories companies keep to support production and distribution — particularly in the automotive sector, as well as reduced net exports, and lower federal, state and local government spending, the Bureau of Economic Analysis (BEA) said. Those factors together subtracted 4.5 percentage points from growth.
But the first-quarter contraction is not necessarily a sign of a fundamental change in direction for the economy, as gross domestic product growth was 6.9pc just a quarter earlier. Rather it largely reflects a drop in net exports as imports surged on inventory rebuilding amid snagged supply chains. Exports of goods fell by 9.6pc while imports of goods surged by 21pc.
"Net trade has been hammered by a surge in imports, especially of consumer goods, as wholesalers and retailers have sought to rebuild inventory," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. That level of inventory-building imports cannot last much longer, he said.
"This is noise; not signal," he said. "The economy is not falling into recession."
Consumer spending, the largest part of the economy, grew at a healthy 2.7pc in the first quarter compared with 2.5pc in the fourth quarter.
Still, government support, including "forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off," the BEA said. Federal government expenditures fell by 5.9pc.
Also crimping growth in the quarter, "an increase in Covid-19 cases related to the Omicron variant resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country," the BEA said.
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Cliffs to buy Canadian steelmaker Stelco
Cliffs to buy Canadian steelmaker Stelco
Houston, 15 July (Argus) — US integrated steelmaker Cleveland-Cliffs will acquire Canadian integrated steelmaker Stelco in a cash and stock deal. The acquisition of Stelco, an independent steelmaker in Hamilton, Ontario, was announced by both companies this morning. Stelco shareholders will receive C$60/share ($44/share) of Stelco common stock and 0.454 shares of Cliffs common stock, or $C10/share of Stelco common stock. The transaction is valued at C$3.4bn ($2.5bn) and the deal is expected to close in the fourth quarter of 2024, according to a news release. Stelco will maintain its headquarters in Hamilton, and capital investments of at least C$60mn will be made over the next three years. Stelco will aim to increase production from current levels and will operate as a wholly-owned subsidiary. In its news release, Cliffs said the purchase of Stelco will double Cliffs' exposure to the flat-rolled spot market, adding that Stelco's primary customer base is service centers buying hot-rolled coil (HRC) products. Stelco shipped 636,000 short tons (st) of steel products in the first quarter, of which 74pc was HRC, according to a quarterly report. Cliffs already operates seven tooling and stamping plants in Canada and a scrap yard run by its Ferrous Processing and Trading Company (FPT), all located in Ontario, according to the company. The head of the United Steelworkers (USW) union, David McCall, is said to support the transaction. Cliffs' move to buy Stelco comes nearly a year after Cliffs began its failed bid to purchase steelmaking competitor US Steel. Japanese steelmaker Nippon Steel is now in the midst of negotiating the $15bn purchase of US Steel, a deal that has been the subject of public political hand wringing and open dispute among the executives of Cleveland-Cliffs, US Steel, Nippon Steel and the USW. By Rye Druzin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Polish gas reforms still needed: Energy Traders Europe
Polish gas reforms still needed: Energy Traders Europe
London, 15 July (Argus) — Recent government plans to amend Poland's onerous gas storage legislation are positive, but more serious reforms are necessary to foster increased competition, industry association Energy Traders Europe told Argus . The Polish government last month said it plans to amend the Act on Stocks in November , removing importers' obligation to maintain mandatory gas storage reserves and placing it on state-owned strategic reserves agency Rars instead. Energy Traders Europe welcomed the move but recommended several further steps to bolster competition and liquidity. The Act on Stocks "needs to be revised first and fast" before addressing other issues in the market, the association's gas market manager, Pawel Lont, told Argus . While shifting the obligation to Rars is a positive first step, Poland would still have "state-enforced storage filling with hardly any capacity left for commercial use", which removes an important flexibility source for the market, he said. Ultimately, storage needs to be reformed to a point at which commercial filling becomes not only possible but desired, Lont said. The government needs to ensure that the system provides an incentive for the storage operator to offer products that are attractive to users, Lont said, noting that currently "this incentive simply does not exist, and this set-up can only inflate the costs of gas consumption in Poland". Energy Traders Europe previously suggested that the strategic reserve should be calculated against the demand of vulnerable customers only, as opposed to all consumers, which would significantly reduce the overall burden and free up space for commercial use. It would also be desirable to move the start date of the draft storage legislation to 1 April 2025 and ensure that licence applications declaring the intention to start commercial activity after this date are tested for compliance with these new rules. It can take a year or more for licence applications to be approved, so "the sooner we start, the better", Lont said, adding that the licensing procedure in Poland is "undoubtedly the most problematic in all of Europe". Applications involve a long list of documents that are difficult to complete in a timely manner. There are also issues on the reporting side, with "an impressive list of 20+ positions reported to different bodies at different points in time" on top of standard EU reporting, Lont said. These obligations create exposure and considerable costs for companies, so it would be beneficial to run a critical review on their necessity, he said. And Polish transmission tariffs are high, although this is understandable given Gaz-System's construction of interconnectors with several neighbouring countries over the past few years. Polish tariffs are decided yearly, while entry/exit splits can also be adjusted, which is problematic for trading companies that would like to book longer-term products. The multipliers and seasonal factors "definitely deserve some rethinking as they severely inflate the costs of short-term capacity products, while booking yearly products in Poland can be quite a bet", he said. But even if these other issues are addressed, "We will [still] be looking at a largely monopolised country, with the dominant player having exclusive access to LNG terminals", Lont said. While the gas release programme is positive for the market, it would be beneficial to see whether Orlen's dominance could be challenged at import terminals. Orlen has booked all capacity at the Swinoujscie terminal, as well as at the planned Gdansk terminal, meaning it continues to be the sole beneficiary of the 100pc discount on entry to the grid from LNG terminals. Several measures could be taken to open other companies' access to the terminals, such as secondary capacity trading, use-it-or-lose-it rules or set-aside rules and limits when allocating capacity to a single entity, Lont said. But these measures would be ineffectual without a guarantee that other firms are ready and willing to book this capacity, so the reforms discussed above need to come first so as to ensure that these participants can actively trade in Poland beforehand, Lont said. In general, it is not unusual to have a dominant company in a given country, but "one just needs an environment in which the group cannot abuse its position and its offer can be challenged", he said. Orlen had a 91pc share of the Polish retail market last year, according to regulator URE. Poland has "all the cards" to develop a liquid gas market, but this takes time, so reforms must get going as soon as possible. Since the change of government, it has at least become "much easier to approach the ministries in Poland", which "helps a great deal on the transparency side", Lont said. By Brendan A'Hearn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Waning German products oversupply evens domestic prices
Waning German products oversupply evens domestic prices
Hamburg, 15 July (Argus) — Germany's recent refined products oversupply, particularly in the south, is waning because of higher demand and technical issues reducing availability. Price differences within the country are starting to level out. Availability of heating oil and road fuels at the Bayernoil consortium's 215,000 b/d Vohburg-Neustadt refinery in Bavaria is restricted. At least one of the refinery's stakeholders is restricting loadings of E5 and 98 Ron gasoline and will probably continue to do so until the end of July. Planned maintenance works on a reformer have reduced production. Diesel and heating oil availability for spot sale are also restricted. A unit outage is affecting the refinery's diesel throughput, and a damaged heating oil tank at Vohburg has restricted loading capabilities since June. Term contracts are unaffected. Demand has increased across the board because of lower domestic prices, after Ice gasoil futures dropped week-on-week. Traded heating oil volumes reported to Argus last week rose especially strongly, by 28pc, and fuel demand also went up. By Natalie Mueller Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Iraq's Opec+ compliance challenges are not going away
Iraq's Opec+ compliance challenges are not going away
Dubai, 15 July (Argus) — Iraq's crude production fell in June but not by enough to stave off heat from the Opec+ alliance. State-owned marketing firm Somo said output dropped by 26,000 b/d on the month to 3.83mn b/d, excluding that from the semi-autonomous Kurdistan region. Production levels in the northern region are unclear, but are probably enough to take the overall country output to above the 4mn b/d limit imposed by the Opec+ agreement. Iraq has failed to meet this target in any month this year, and as the Opec+ alliance's least compliant member it agreed in May to make additional cuts to compensate for prior overproduction. The Opec+ secondary sources, which include Argus , put Iraq's output at 4.19mn b/d in June. Iraq's oil ministry on 14 July reiterated its commitment to meeting the 4mn b/d limit and reaffirmed its willingness to compensate for the excess production since the beginning of the year. Baghdad's mission is made more difficult by a lack of visibility in Kurdistan, where 400,000 of crude exports were taken off international markets in March 2023. Argus estimates output from the region at between 250,000 b/d and 300,000 b/d, much of which ends up in Turkey or Iran, but the Kurdistan Regional Government (KRG) has stopped providing any oil-sector data. Baghdad says a drop in its crude exports is evidence of attempts to improve compliance — shipments from the southern Basrah oil terminal averaged 3.29mn b/d in June, down from 3.36mn b/d in May and 3.41mn b/d in April, according to Somo. Kpler data put Iraq's crude exports at 3.24mn b/d in June, the lowest since the beginning of the year. Somo said the amount of crude supplied to domestic refineries increased to 475,000 b/d in June from 441,000 b/d in May and 421,000 b/d in April. It said 10,000 b/d were exported to Jordan. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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