Commodity Tracker: 4 charts to watch this week
Chinese electricity and fuel supplies are the focus this week, as utilities grapple with rising raw material costs. In addition, high freight rates discourage exports of polymers from Asia to Europe, and the supply of Latin American crude is favored in Asia.
1. Chinese provinces impose power cuts as authorities try to cool demand
What is happening? In early June, China’s National Development and Reform Commission called on all provinces to reduce their energy consumption to curb an increase in electricity demand observed for the first part of 2021. However, only 10 of mainland China’s 30 regions met their energy reduction targets by year-end. end of the first half of 2021, and the country experienced strong growth in electricity demand in July and August. In mid-September, the NDRC announced tougher penalties for regions that fail to meet their targets and said it would hold local officials accountable. As a result, power cuts are now taking place in some provinces. Companies operating in the manufacturing industry appear to be the hardest hit, while the impact on residential electricity supply is localized to only a few markets.
And after? S&P Global Platts Analytics estimates that the power outages could be over by November 15, the official start date of the winter heating season. Platts Analytics also believes that the higher spot prices of commodities (coal, gas) are of concern to utilities, which are unwilling to pay higher prices if these higher costs cannot be passed on to the prices of electricity. Electricity prices are heavily regulated and any changes must be implemented by the government.
2. Asian coal prices find support in low regional stocks
What is happening? Coal prices are reaching record highs amid China’s rush to rebuild stocks ahead of winter, with the S&P Global Platts Northeast Asia Thermal Coal Index breaking above $ 150 / mt last week. Meanwhile, India’s inventory levels are hovering at dangerously low levels.
And after? Indonesian thermal coal prices are expected to find support despite the Golden Week holiday in China, and Australian thermal coal prices are also expected to remain firm on strong demand from markets outside China. China’s power shortage situation is expected to last until October and support the prices of major energy commodities like coal, natural gas and LNG.
3. Polymer exports from Asia to Europe are affected by containers and high transport costs
What is happening? The continued rise in global container tariffs and freight costs has limited opportunities for arbitrage between Asian and European markets for polyethylene and polypropylene. Although Asian prices remain significantly lower than in Europe, high logistics costs limit the amount of Asian material arriving in the region. This leaves European markets increasingly dependent on domestic raw materials and vulnerable to supply shocks.
And after? With high freight costs expected to persist through 2022, sources have indicated that they expect arbitrage opportunities to remain limited. However, given the uncertainty surrounding Chinese downstream demand following recent power cuts in the country, any downward pressure on Asian prices may result in more open arbitrage. Additionally, if European polymer markets were to become tight due to a lack of imports, it could support market sentiment and potentially improve arbitrage opportunities.
4. Ecopetrol and the Latin American oil hub to Asia
What is happening? Currently, 63% of Colombia’s total crude exports are concentrated in the Asian market, a sharp increase since 2008, when the share of crude sales to Asia was only 18%, Ecopetrol President Felipe Bayon said during his presentation and a chat session with the CEO at the S&P Global Platts Asia Pacific Petroleum conference on September 27. Asia is now Ecopetrol’s main export and sales destination and the Colombian oil and gas giant will open an office in Singapore with the aim of launching trading and marketing operations from the Asian mall in first quarter 2022, according to Bayon.
And after? Chinese state-owned refiners and independent private-sector refiners have indicated that Ecopetrol’s sales and marketing team’s close presence in Asia will further strengthen their business partnerships, as China is already an established outlet for the Colombian supplier. Major South Korean refiners told S&P Global Platts the companies were also excited to see more Latin American players move closer to the Far East, as the world’s fifth largest crude importer saw heavy crude share. South Americans in its total refinery. The commodity supply basket has grown to 3.5% so far in 2021, from 1.7% in 2020, according to Platts calculations based on data from Korea National Oil Corp.
Reporting and analysis by Andre Lambine, Callum Colford, Rituparna Nath, Eric Yep, Philip Vahn, Daisy Xu