Oil ends 2015 battered by supply glut

Oil prices pared losses Thursday but ended 2015 sharply lower as the "black gold" was battered by prolonged global oversupply and a slowdown in energy-hungry China's economy. 

PHOTO: REUTERS

JAN 1, 20167:10 AM

[NEW YORK] Oil prices pared losses Thursday but ended 2015 sharply lower as the "black gold" was battered by prolonged global oversupply and a slowdown in energy-hungry China's economy.

North Sea Brent, the European benchmark for oil, dropped almost 35 per cent over the year, while the US benchmark West Texas Intermediate (WTI) fell 30 percent.

"With Brent crude oil hovering near 11-year lows and WTI not faring all that much better, the markets are ending the year on a somber note, consistent with what we see as ongoing physical oversupply," said Tim Evans of Citi Futures.

The key futures contracts finished Thursday with modest daily gains. WTI for delivery in February rose 44 cents to close at US$37.04 on the New York Mercantile Exchange.

In London, Brent for February delivery rose 82 cents to US$37.28 a barrel.

The modest rebound Thursday may stem from investors trying to minimise risks after betting on prices to fall ahead of the long New Year's weekend, said Andy Lipow of Lipow Oil Associates. Markets are closed Friday.

"It could be simply end-of-year short-covering because the market has been so bearish," he said, "and people squaring their positions."

Crude futures have dived from more than US$100 a barrel in mid-2014 as abundant supplies were exacerbated by strong output by Opec and the United States.

Prices have particularly slumped since December 4 when the Organisation of the Petroleum Exporting Countries decided against limiting production as members fight to keep market share.

Also weighing on market sentiment was China as growth slowed in the economy of the world's largest energy consumer. And Opec member Iran was poised to boost crude exports after sanctions are lifted, part of its landmark nuclear agreement with major powers.

"We know the market is oversupplied and as we go into 2016 the market will await the return of Iranian oil," Mr Lipow said.

Potentially adding to the supply worries was action by the US Congress earlier this month to end the 40-year-old US ban on exports of crude oil producted in the country.

NuStar Energy and ConocoPhillips announced on Wednesday they were loading "what they believe to be the nation's first export cargo of US-produced light crude oil" since the ban was lifted.

AFP

    
 

Update: India 2030 bonds reverse losses as govt meets auction goal

JAN 1, 20166:27 PM

[MUMBAI] India's government met its target at Friday's bond sale, allaying concern demand for sovereign debt is weakening after primary dealers stepped in to rescue the last two auctions.

The yield on the 7.88 percent notes due March 2030 dropped three basis points to 7.93 percent as of 3:31 pm in Mumbai, according to prices from the central bank's trading system. It rose to as high as 7.98 per cent before the auction results. The yield on bonds due May 2025, the current 10-year benchmark, also declined three basis points to 7.73 per cent.

The administration sold 140 billion rupees (S$2.99 billion) of securities, including 60 billion rupees of notes due 2030, as sales resumed after a two-week break. Benchmark 10-year yields capped their biggest quarterly advance since 2013 on Thursday as worries India will struggle to meet budget-deficit targets soured investor sentiment. The nation granted global funds access to an additional 165 billion rupees of sovereign and state-government bonds from Jan 1, part of a plan to increase foreign-investment limits in phases.

"The bond market drew comfort from the fact that the auction went through smoothly," said Ajay Manglunia, Mumbai- based head of fixed income at Edelweiss Financial Services Ltd. "Investors are also relieved that some part of the debt supply will get absorbed as new foreign-investment limits take effect, easing the pressure on bonds." The government raised 150 billion rupees at the previous auction on Dec 11 with the help of primary dealers, who bought the unsold debt as demand faltered.

The rupee fell 0.1 per cent on Friday to 66.22 a dollar, prices from local banks compiled by Bloomberg show. The currency weakened 4.7 per cent last year in its fifth straight annual decline, the longest stretch since 2001.

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India 2030 bond yield rises to 4-mth high as supply looms

JAN 1, 20164:47 PM

[MUMBAI] Indian sovereign bonds maturing in 2030 fell, pushing the yield to its highest level since August, as the government offers the securities at an auction.

Prime Minister Narendra Modi's administration plans to sell 140 billion rupees (S$2.99 billion) of debt on Friday, including 60 billion rupees of the 2030 notes, as sales resume after a two-week break. Demand faltered at the last two auctions, with underwriters coming to the rescue by purchasing unsold securities. Benchmark 10-year yields capped their biggest quarterly advance since 2013 on Thursday as concern India will struggle to meet its budget-deficit targets soured investor sentiment.

The yield on the 7.88 per cent debt due March 2030 rose two basis points to 7.97 per cent as of 12:58 p.m. in Mumbai, the highest since Aug 24, according to prices from the central bank's trading system. That on the notes due May 2025, the current 10-year benchmark, was steady at 7.76 per cent.

"The market is a bit nervous," said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. "Bond gains have been hard to come given the concerns about the fiscal-deficit targets and an increase in states' borrowings."

Finance Minister Arun Jaitley's goal of fiscal consolidation is being threatened by a proposed increase in salaries of millions of civil servants and a plan to clear the debts piling up at power distribution companies. While steps to boost taxes will help reach the deficit target of 3.9 per cent of gross domestic product in this period, the 3.5 percent goal for the 12 months ending March 2017 could be pressured, the ministry said in a review published Dec 18.

The rupee fell 0.2 per cent on Friday to 66.2575 a dollar, prices from local banks compiled by Bloomberg show. The currency weakened 4.7 per cent last year in its fifth straight annual decline, the longest stretch since 2001.

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Easy money hard to find in 2015 with markets cooled by China, Fed

Global equities snapped a three-year rally as a slowdown in the Chinese economy fueled the biggest retreat in raw materials prices since 2008 just as the Federal Reserve ended its zero interest-rate policy. 

PHOTO: AFP

JAN 1, 20168:05 AM

[NEW YORK] For investors, 2015 will be remembered as a year to forget.

Little went right and plenty went wrong, including losses in global stocks, commodities and currencies. The small gains in bonds were wiped out when inflation is considered. While pockets of strength were found in places such as the dollar, South African stocks, Ukrainian bonds and some soft agricultural commodities like sugar and cocoa, it just wasn't enough to focus attention away from the malaise that settled into markets.

"It was a year when the rather mainstream investments didn't work - stocks, bonds, commodities - and a lot of that obviously comes from the very, very low oil prices," said Richard Sichel, chief investment officer at Philadelphia Trust Co, which oversees US$2 billion. "It will be a relief to turn the page. It has been a frustrating year, there were fairly nice gains in the middle of the year and you see it go away. We spent the year going up and down and ending sideways, but you always try to pick up your marbles and keep investing."

Global equities snapped a three-year rally as a slowdown in the Chinese economy fueled the biggest retreat in raw materials prices since 2008 just as the Federal Reserve ended its zero interest-rate policy. The Standard & Poor's 500 Index ended in negative territory and the Dow Jones Industrial Average had its worst year since 2008.

The Bloomberg Commodity Index sank 25 per cent, the most since the financial crisis, as crude capped its first back-to-back slump since 1998. Emerging-market equities plunged 17 per cent, while commodity currencies tumbled. Bonds gained for a second year, outperforming stocks globally, on haven demand. The yen had a record fourth annual loss.

STOCKS

The S&P 500 fell 1 per cent at 4pm in New York, leaving it lower by 0.7 per cent in 2015. The Dow Jones Industrial Average lost 2.2 per cent this year, while the Nasdaq 100 Index outperformed, rising 8.4 per cent. Markets are closed tomorrow for the New Year holiday.

"This is the most poetic way you could end the year," said Jeff Clark, an analyst at Stansberry & Associates in San Francisco. "The market has basically done nothing. We've had some attempts to rally and some attempts to drop, but it's been a pretty frustrating year for trading. The momentum is in the bearish camp right now."

The market's torpor is likely to be broken next week as investors will return from the holiday to a swath of data, including gauges on the manufacturing and services industries, the monthly jobs report and minutes from the Fed meeting that ended with the first rate increase since 2006.

The Stoxx Europe 600 fell 5.1 per cent in December, trimming its rally for the year to 6.8 per cent, the most since 2013. Germany's DAX Index climbed 9.6 per cent in 2015, with strategists seeing more gains for 2016.

Italy's FTSE MIB Index was among the best performers in western Europe, rallying 13 per cent. The UK's FTSE 100 Index fell 4.9 per cent. Greece's ASE Index plunged 24 per cent.

COMMODITIES

Crude futures plunged 32 per cent this year, a second annual loss that exceeds the magnitude of the slump during the Asian economic crisis from 1997 to 1998. There were few signs of an end to the supply glut that pushed prices below US$40 a barrel.

Natural gas futures that staged the biggest year-end rally on record might continue to climb after the new year as a blast of frigid weather sweeps into the Northeast.

Gas prices jumped 34 per cent since settling at a 16-year low on Dec 17 as weather forecasts showed chillier weather will hit the East next week after an unusually mild end to 2015 that bloated a supply glut.

Gold fell 10 per cent for a third straight annual decline, the longest retreat in 15 years, as the surge in the dollar following the Fed's monetary-policy tightening compounded the broader collapse in commodity prices. Bullion futures also capped the sixth straight quarterly loss, the longest slump since 1984. Prices, which were little changed on Thursday, have plunged about 45 per cent since reaching a record in 2011.

Industrial metals fell, capping the worst year since 2008, as production cuts and signs of improving demand in China came too late to counter falling consumption and excess supplies.

Aluminum, copper, zinc, tin, nickel and lead capped annual losses, with nickel dropping 42 per cent, the worst performer on the London Metal Exchange LMEX Index. The gauge fell 24 per cent this year.

BONDS

The Global Broad Market Index of bonds from Bank of America Merrill Lynch has returned 0.85 per cent this year, down from a gain of 7.8 per cent in 2014.

US Treasuries were little changed with 10-year notes yielding 2.29 per cent, 11 basis points more than at the end of 2014.

The Treasury's final three auctions of coupon-bearing notes this year drew some of the lowest investor demand since the financial crisis with the Federal Reserve on course to raise interest rates several times next year, potentially lowering the value of the debt.

Germany's bond market are closed until Jan 4, while UK market is scheduled to close early ahead of the New Year holiday. US bonds futures close at 1pm, and cash an hour later.

FOREIGN EXCHANGE

The Bloomberg Dollar Spot Index, which tracks the greenback against its 10 most-traded peers, climbed 8.9 per cent in 2015, a third straight gain. The yen had a record fourth annual decline, while the euro slumped a second year, as stimulus in Japan and the euro area widened the gap between monetary policy in those regions and the US.

Commodity producers' currencies have led declines against the dollar in 2015 as tumbling prices for everything from oil to iron ore, copper and milk collided with expectations for higher US interest rates.

EMERGING MARKETS

The MSCI Emerging-Markets Index plunged 17 per cent in 2015, the biggest annual loss since 2011. Emerging stocks are valued at 11 times estimated 12-months earnings, a 31 per cent discount to the the MSCI World Index.

A measure of 20 developing-nation exchange rates depreciated 15 per cent in 2015, the steepest slide since 1997, and analysts are forecasting further losses in 2016 due to China's slowdown and rising US interest rates.

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Euro, pound sag on final day of year

The euro and pound sagged on the final day of the year on Thursday ahead of a long holiday weekend and next week's gush of US economic data. 

PHOTO: BLOOMBERG

JAN 1, 20166:55 AM

[NEW YORK] The euro and pound sagged on the final day of the year on Thursday ahead of a long holiday weekend and next week's gush of US economic data.

After holding steady against the greenback for more than a week, the euro lost 0.6 per cent at US$1.0855 around 2200 GMT, amid mounting analyst predictions that the US currency will strengthen further in early 2016.

The euro also slipped 0.8 per cent on the yen to 130.59 yen.

The pound, which has steadily fallen since early November on rising doubts that the Bank of England will begin tightening monetary policy in the near future, lost another 0.5 per cent at US$1.4737. That nevertheless was still nearly two cents higher than the year's low struck in April.

Markets are "looking ahead to 2016 when the Federal Reserve has penciled in a series of dollar-bolstering interest rate rises," said forex market analyst Joe Manimbo of Western Union Business Solutions.

"2016 looks bright for the buck but it will need the cooperation of a better economic backdrop at home and abroad for it to sustain its run."

AFP

    
 

Taleban suicide attack targets French restaurant in Kabul

      

JAN 1, 201611:04 PM

[KABUL] A Taleban suicide car bomber hit a French restaurant popular with foreigners in Kabul on Friday, in a New Year’s day attack that marks the latest in a series of brazen insurgent assaults. 

 At least four people were wounded in the attack on Le Jardin, an Afghan-owned eatery, which caused a piercingly loud explosion and left a building engulfed in flames.

The restaurant is popular with foreigners in Kabul.

The incident came just days after Pakistan's powerful army chief General Raheel Sharif visited Kabul to try to prepare the ground for fresh peace talks with the resurgent Taleban.

Both sides agreed to hold a first round of dialogue between Afghanistan, Pakistan, US and China on January 11 to lay out a comprehensive roadmap for peace, officials in Kabul said.

Pakistan - the Taleban's historic backers - hosted a milestone first round of talks in July but the negotiations stalled when the insurgents belatedly confirmed the death of longtime leader Mullah Omar.

Afghanistan sees the support of Pakistan as vital to bring the Taleban to the negotiating table.

But despite the growing bonhomie with Islamabad, analysts caution that any substantive talks are still a long way off.

AFP

      

Updated: Germany lifts alert of imminent attack in Munich

JAN 1, 20169:08 PM

[Munich] German police on Friday lifted an alert of an imminent attack in Munich, hours after evacuating two key train stations over fears jihadists were planning a New Year suicide bomb assault.

Officials had said they were tipped off about a plot by the Islamic State group to strike at the southern German city shortly before midnight as Europe prepared to ring in the New Year in an atmosphere of unprecedented security.

European capitals have been on high alert since November when IS jihadists slaughtered 130 people in a series of gun and suicide attacks in Paris, stoking fears they could stage further attacks over the Christmas and New Year holidays.

But German investigators, acting on information from a foreign intelligence service, said they have so far failed to substantiate the threat.

"Overall I would say that the situation for Munich is as it was before this threat of attack," Munich police chief Hubertus Andrae told journalists on Friday.

Investigators had in hand the names of some of the "five to seven" suspects allegedly planning to blow themselves up at locations including Munich's main rail hub and Pasing station in the western part of the city, he said, but have not yet found any evidence.

"We have examined data relating to these names, but at the moment, we do not know if these names are correct, whether these people exist and where they are," he said, adding that the suspects were allegedly from Iraq and Syria.

A large deployment of 550 officers overnight has now been reduced to 100, and Andrae urged the public to "live as you did before".

Nevertheless, the police chief refuted speculation that the threat was a false alarm, saying that "if there is such information, we have to act".

AFP

    
 

Hong Kong protesters air grievances on New Year's day

JAN 1, 20168:06 PM

[HONG KONG] More than 1,500 people protested in Hong Kong on New Year's day on Friday calling for the city's leader to resign and airing grievances over issues from expensive construction projects to internet freedoms.

A procession of yellow umbrellas - the symbol of the city's democracy movement - moved through the city's downtown with protesters carrying signs reading "fight for the freedom of the next generation" and demanding the resignation of officials who "sold out" the city.

Leading the protest was a large replica of a white elephant with a model of the city's unpopular leader Leung Chun-ying riding it, symbolising expensive public projects.

"We want universal pension, step down Leung Chun-ying, we are against white elephant projects," protesters repeatedly shouted.

Police said that 1,600 people joined the protest at its peak, while organisers estimate the crowd at more than 3,000.

Negative sentiment remains high against authorities after mass pro-democracy rallies calling for free leadership elections in 2014 brought no concessions on political reform from Beijing and Hong Kong authorities.

"It's really for the next generation, they deserve a better Hong Kong," pro-democracy lawmaker Claudio Mo, who participated in the rally, told AFP.

"Leung has been provoking the Hong Kong population non-stop," Mo said, adding that spiralling costs for major construction projects, such as a planned high-speed railway link with mainland China, have angered residents.

Cost estimates for that project have risen by more than 30 per cent to US$11.01 billion in recent years, and the completion date has been repeatedly pushed back.

"We would like Leung Chun-ying to step down and hold this march so he can hear what we want and know what he has done wrong," Match Ip, a 19-year-old university student told AFP.

On Thursday, Hong Kong University students and alumni voiced fury after a pro-Beijing official was appointed to a senior role at the university, as tension mounts over what critics see as political interference in the city's education system.

Once a British colony, Hong Kong was handed back to China in 1997 under a deal that guaranteed the retention of its civil liberties and capitalist system for 50 years.

AFP

China's factory activity shrinks for 5th straight month

JAN 1, 20163:59 PM

[BEIJING] China looked set for a soggy start to 2016 after activity in the manufacturing sector contracted for a fifth straight month in December, suggesting the government may have to step up policy support to avert a sharper slowdown.

While China's services sector ended 2015 on a strong note, the economy still looked set to grow at its slowest pace in a quarter of a century despite a raft of policy easing steps, including repeated interest rate cuts, in the past year or so.

The world's second-largest economy faces persistent risks this year as leaders have pledged to push so-called "supply-side reform" to reduce excess factory capacity and high debt levels.

The official manufacturing Purchasing Managers' Index (PMI)stood at 49.7 in December, in line with expectations of economists polled by Reuters and up only fractionally from November.

A reading below 50 suggests a contraction in activity, while a higher one indicates an expansion. Still, economists seemed to find some comfort that there were no signs of a sharper deterioration which has been feared by global investors.

The slight pick up in the manufacturing PMI "suggests that (economic) growth momentum is stabilising somewhat ... however, the sector is still facing strong headwinds, said Zhou Hao, China economist at Commerzbank in Singapore. "In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive." Weak demand at home and abroad has weighed on China's factories, exacerbating the problem of excess capacity and forcing them to cut prices of their goods, eating into their profits and adding to deflationary pressures in the economy.

Total new orders - a proxy for both domestic and foreign demand - rose to 50.2 in December from November's 49.8, the PMI survey showed.

But export orders shrank for the 15th straight month, albeit at a less severe pace.

The sub-index inched up to 47.5 from November's 46.4. The National Bureau of Statistics (NBS) said that although oil prices were very low at present, cash at the end of the year was tight for factories, putting relatively large pressure on manufacturers.

China's economic growth is expected to cool from 7.3 per cent in 2014 to 6.9 per cent in 2015, the central bank said in a recent work paper, its slowest pace in 25 years.

It said growth could ease further to 6.8 per cent in 2016. Some China watchers, however, believe real growth levels are already much weaker than official data suggest.

Leaders at the annual Central Economic Work Conference last month pledged to make monetary policy more flexible and expand the budget deficit in 2016 to help underpin growth and reforms.

Indeed, China could run its biggest budget deficit in half a century this year as leaders turn to more government spending to arrest the slowdown in the economy, policy advisers say, after disappointing returns from a year of policy easing.

The central bank is widely expected to cut interest rates and banks' reserve requirement ratios further this year.

REUTERS

    
 

Deadly floods choke everything from oil to wheat in US Midwest

JAN 1, 20162:54 PM

[HOUSTON] Deadly flooding across the US Midwest is disrupting everything from oil to agriculture, forcing pipelines, terminals and grain elevators to close and killing off thousands of pigs.

The floods have killed at least 20 people and closed hundreds of roads across Missouri and Illinois, according to AccuWeather Inc. Rain-swollen rivers will set records in the Mississippi River basin through much of January. 80km of the Illinois River have been closed, according to the US Coast Guard, as well as 130.4km of the Mississippi River in two segments.

The flooding is the worst since May 2011, when rising water on the Mississippi and its tributaries deluged cities, slowed barge traffic and threatened refinery and chemical operations. The current situation increases stockpiles of crude oil and may extend this year's price slide.

Hog producers in southern Illinois were calling other farmers, hoping to find extra barn space to relocate pigs, said Jennifer Tirey, executive director of the Illinois Pork Producers Association.

Processors are sending additional trucks out to retrieve market-ready pigs, she said on Thursday. In one case, an overflowing creek took out electricity and made roads impassable, causing 2,000 pigs to drown.

'SO MUCH RAIN'

"There was no way to get the pigs out," Ms Tirey said. "Honestly, it was just an act of God. That creek had so much rain." So far, the biggest oil shutdown involves Enbridge Inc's Ozark pipeline, which was booked to carry about 200,000 barrels a day this month to Wood River, Illinois, from Cushing, Oklahoma.

The outage of the section under the Mississippi River may further add to stockpiles at Cushing that reached a record high last week.

"The closure of the Ozark pipeline will just add to the stocks at Cushing," said Amrita Sen, chief oil economist at Energy Aspects Ltd in London.

Spectra Energy Corp shut the 145,000 barrel-a-day Platte oil pipeline between Guernsey, Wyoming, and Wood River as a precaution because of the river's condition, the company said in an e-mailed statement.

St Louis received 15cm from Dec 26 to Dec 28, according to AccuWeather data. By Wednesday, Ameren Missouri was ferrying employees to and from its Sioux Energy Centre north of St Louis. The coal-fired power plant is still operational and workers will continue to travel by boat until the floodwaters recede, the company said in a statement.

CLOSED TERMINALS

Kinder Morgan Inc shut its Cahokia terminal in Sauget, Illinois, and its Cora terminal in Rockwood, Illinois, company spokesman Richard Wheatley said by e-mail. Cahokia handles chemicals, coal, cement and metals while Cora handles coal and petcoke, according to the company's website. Kinder Morgan declared a force majeure, which protects it from liability for contracts that go unfulfilled for reasons beyond its control.

Exxon Mobil Corp is shutting a fuel terminal on the Mississippi River at Memphis "in anticipation of severe weather," spokesman Todd Spitler said in an e-mail Wednesday.

Barge operators shipping grain took advantage of early forecasts for the heavy rain and flooding to transport loads before Christmas to ports in New Orleans, where there's "adequate inventory," said Wes Traina, logistics manager for Zen-Noh Grain Corp in Convent, Louisiana. Still, high water may continue to slow shipping and loading throughout January, he added.

'FAST CURRENTS'

"The biggest concern from the high waters and fast currents will be from barges hitting a bridge and breaking apart," Mr Traina said by phone. "It's inevitable that accidents will occur." The southern Illinois co-op Gateway FS Inc has closed three of its grain elevators. Employees are working extended hours to accommodate the large number of farmers hauling in grain from on-farm bins that could be compromised by flooding, said general manager Carl Tebbe.

"We're just hopeful the water doesn't quite get as high as what they're saying," Mr Tebbe said. "Everyone has done a lot of work."

SAFETY ADVISORY

The Coast Guard issued a high-water safety advisory for 566 miles of Mississippi River between Caruthersville, Missouri, and Natchez, Mississippi. It also instituted high-water towing limitations near Morgan City, Louisiana, for vessels heading south that are 600 feet or shorter, it said in a statement.

The floodwaters may eventually reach Louisiana, which has 10 refineries in the Baton Rouge-New Orleans area with a combined capacity of about 2.5 million barrels, or 13 per cent of the nation's capacity, said Andy Lipow, president of Lipow Oil Associates in Houston.

Refineries including Exxon's facility in Baton Rouge and Marathon Petroleum Corp.'s in Garyville, Louisiana, will probably try to get their crude and ship out their products if they can before the river levels rise, Mr Lipow said.

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Kim Jong Un vows to raise living standards, warns foreign 'provocateurs'

North Korean leader Kim Jong Un said raising living standards was his top priority in a low-key annual New Year's address on Friday that avoided any explicit reference to the country's nuclear weapons programme. 

PHOTO: REUTERS

JAN 1, 20162:20 PM

[SEOUL] North Korean leader Kim Jong Un said raising living standards was his top priority in a low-key annual New Year's address on Friday that avoided any explicit reference to the country's nuclear weapons programme.

The 30-minute televised speech was not without the normal bellicose rhetoric - threatening a "sacred war" if provoked and stressing the need to develop "varied" military strike options - but the clear thrust was economic development in the isolated, cash-strapped state.

"The Workers Party of Korea gives top priority to the issue of improving people's living standards among millions of other national tasks," Kim said.

"We must create a turnaround in economic development," he added.

Kim has issued similar calls in his three previous New Year addresses and, as on those occasions, Friday's speech offered little in terms of specific policy for achieving his economic objectives.

On relations with South Korea, Kim said he was open to talks but warned Seoul against any activity that might threaten a tentative cross-border agreement reached in August to reduce tensions.

In particular, he stressed the provocative dangers inherent in the South's annual joint military exercises with the United States - a perennial thorn in North-South ties.

"If aggressors and provocateurs touch us even slightly, we will not hesitate to respond with a merciless sacred war for justice and national reunification," he said.

His speech came a day after the state funeral of North Korea's top official in charge of relations with South Korea, Kim Yang Gon, who state media reported as having died in a car accident on Tuesday.

Kim had long been the North's point man on cross-border affairs, and his death was seen as a further setback to efforts to improve the always volatile relations between Seoul and Pyongyang.

Kim Jong Un, wearing black-rimmed glasses and his trademark black Mao suit, delivered his speech from behind a lectern in a wood-panelled room in the ruling Workers' Party Central Committee Office Building in Pyongyang.

No audience was shown although the address was regularly interrupted by what appeared to be canned applause.

There was no mention of the nuclear arsenal or ballistic missile programme that has made the North the target of multiple international sanctions over the years, although Kim did stress the need to "develop more varied means of military strikes".

"The overall tone was quite low-key, and the emphasis was clearly on the economy, rather than political or military issues," said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul.

"Possibly he wanted to avoid irritating China and others in the region ahead of the crucial party congress in May," Prof Yang said.

The Workers' Party congress will be the first of its kind for 35 years, and is expected to offer some clarity on the current leadership's policy direction.

Since taking over power following the death of his father Kim Jong-Il in late 2011, Kim has prioritised economic development in a way that his father, with his "military first" policy, never did.

In his very first public address, at a military parade in April 2012, Kim had said he was determined that North Koreans would "never have to tighten their belts again".

He has relaxed some controls on farmers and state-run firms, and set up more than a dozen special economic zones.

And a closely monitored but tolerated grassroots capitalism, born out of a spirit of survivalist self-sufficiency that got many through the catastrophic failure of the state distribution system in the famine years of the mid-to-late 1990s, has given rise to a growing entrepreneurial class.

While North Korea does not release official economic data, South Korea's central bank estimated its economy expanded 1.0 per cent in 2014.

But the North remains a deeply impoverished country with a gross national income estimated at just 2.3 per cent of the South's.

And there is a stark urban-rural divide in living standards, with malnutrition still a serious problem in the countryside.

AFP