This week: Freezing temperatures in North Asia send power-generating fuel prices to record highs, and coronavirus infections trigger more restrictions across Asia, threatening transportation fuel demand.
Spot LNG start the week on a high note after prices surged to an all-time high of 21 dollars 45 cents per MMBtu on January 8. This is the highest for Platts JKM, the LNG price benchmark, since it was launched in early 2009. The previous high for JKM was 20 dollars 20 cents in February 2014.
Prices were lifted as temperatures dropped in Asia, boosting demand for heating fuel. Temperatures in Beijing dropped below minus 18 degrees Celsius last week — the lowest in 20 years. Japan’s winter conditions remain below the 30-year average and South Korea has logged the lowest temperature in 35 years as a cold wave sweeps the country.
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The cold weather has sent electricity prices in Japan to more than 100 Yen per kilowatt hour which is nearly 20 times more than December levels, as Japanese utilities ration power supply and burn through gas inventories.
In China, trucked LNG prices surged to around $28/MMBtu in the northern region around Beijing, Tianjin and Hebei at the start of this year, nearly doubling in a single week due to a third cold snap and local supply disruptions.
End-users in North Asia have been scouring the market for prompt cargoes but supply is tight due to the lack of shipping and supply issues in producers like Malaysia. Panama Canal restrictions have contributed to shipping rates for LNG hitting a multi-year high with prices in the Atlantic hitting $300,000/day at the end of last week.
Power utilities in Japan and China have been fighting coal shortages. Tensions with Australia have shifted Chinese coal demand to Indonesia and Russia, eating into Japan’s supplies, but supplies in Russia, Indonesia and Australia have also become tight.
Meanwhile, transportation fuel demand is expected to slow again due to outbreaks of COVID-19 throughout Asia.
Japan last week announced a month-long state of emergency in Tokyo and three adjacent prefectures, and China is battling new infections in northern provinces.
Southeast Asia’s largest economies — Malaysia, Indonesia and Thailand – are also seeing cases rise amid concerns about the new UK strain.
Analysts said weaker fuel demand expectations contributed to Saudi Arabia’s decision to make a unilateral production cut of 1 mb/d in February and March.
Many forecasters have already begun dialing down oil demand expectations for the first quarter of 2021 due to the lockdowns and movement restrictions, and as vaccinations programs could take months to implement.
Finally, in Asian agriculture markets the corn bulls are expecting a production cut in Argentina to be offset by an increase of US corn exports.
Both corn and soybean futures have rallied at the start of 2021 and many are watching to see if funds will cash out or drive markets even higher to defend their largest long positions since the drought of 2012.
For more on all the issues affecting commodity markets from wherever you are, make sure to check out Platts LIVE at the address displayed on your screen.
Thanks for kicking off your Monday with us. Have a great week ahead!