1. Saudi Arabia Seeks to Regain Market Share in China
- As Saudi Arabia is finalizing its 2024 term contracts, to be done by the end of October, the Middle Eastern kingdom is set to increase its crude supplies to China as new refining capacity lifts offtake.
- Russia has become the top crude supplier to China with 2.1 million b/d exported in January-July, some 300,000 b/d higher than Saudi Arabia's exports with Iraq coming in at third place with 1.2 million b/d.
- Saudi growth will be led by the 800,000 b/d Zhejiang Petroleum & Chemical refinery which started to load crude under its huge 480,000 b/d supply deal with Aramco in September, whilst the 400,000 b/d Yulong refinery in Shandong is set to start importing Arab crude next year.
- Saudi Arabia currently accounts for 16% of the Chinese crude market, down from 17.2% this time last year, but these new volumes should help Aramco regain lost territory in a country where most refineries are configured to run on Saudi crude.
2. China's Huge Zinc Imports Rekindle Hopes of Growth
- Chinese imports of zinc have recovered to levels not seen since April 2019, bolstering hopes that the Asian country's economic growth might be on an upward trajectory in the second half of 2023.
- Total zinc imports into China came in at 76,800 metric tonnes in July, in just one month equalling the entire annual tally of 2022 as traders are betting on policy support from Beijing.
- The LME…
1. Saudi Arabia Seeks to Regain Market Share in China
- As Saudi Arabia is finalizing its 2024 term contracts, to be done by the end of October, the Middle Eastern kingdom is set to increase its crude supplies to China as new refining capacity lifts offtake.
- Russia has become the top crude supplier to China with 2.1 million b/d exported in January-July, some 300,000 b/d higher than Saudi Arabia's exports with Iraq coming in at third place with 1.2 million b/d.
- Saudi growth will be led by the 800,000 b/d Zhejiang Petroleum & Chemical refinery which started to load crude under its huge 480,000 b/d supply deal with Aramco in September, whilst the 400,000 b/d Yulong refinery in Shandong is set to start importing Arab crude next year.
- Saudi Arabia currently accounts for 16% of the Chinese crude market, down from 17.2% this time last year, but these new volumes should help Aramco regain lost territory in a country where most refineries are configured to run on Saudi crude.
2. China's Huge Zinc Imports Rekindle Hopes of Growth
- Chinese imports of zinc have recovered to levels not seen since April 2019, bolstering hopes that the Asian country's economic growth might be on an upward trajectory in the second half of 2023.
- Total zinc imports into China came in at 76,800 metric tonnes in July, in just one month equalling the entire annual tally of 2022 as traders are betting on policy support from Beijing.
- The LME three-month zinc contract currently trades at $2,450 metric tonnes, still some $500/mt below prices in early 2023, even though registered stocks in the Singapore exchange remain very low, slightly above 43,000 metric tonnes.
- The demand boost for zinc comes from increased Chinese smelting of the metal, leaving behind the power curbs and production mandates of 2022, cumulative zinc smelting was up 10% year-on-year at 3.78 million tonnes in the first seven months of the year.
3. Chilean Lithium Exports Rebound Amidst Weakening Outlook
- Chile's lithium production rebounded in August after months of stagnant supply, with government revenue moving up 18% month-on-month to 525 million despite slumping prices.
- The outlook for lithium prices remains highly bearish as the average selling price of EV cells fell below 0.6 per Wh, reflecting a wider 10% month-on-month drop in prices in August, indicating weak supply from battery producers.
- For Chile's embattled lithium industry, an emerging deal between SQM and Codelco which should de-risk supply from 75% of the country's salt flat acreage and revamp a long-term deal that would have otherwise run out in 2030, should be a moderately positive sign of change.
- Investor interest has generally avoided Chile so far in 2023, with early-stage deals in Australia becoming the preferred way for production giants like Albemarle to expand inorganically.
4. UK Tries to Catch Up with North Sea Investment Boom
- Investments into Norway's oil and gas industry are set to reach an all-time high of 21 billion in 2023, mostly driven by the country's temporary tax incentives introduced in 2020-2022 to avoid a COVID-driven investment slump.
- The United Kingdom is a hefty 75% down compared to its investment peak of 23 billion in 2013 as windfall taxes and weak government support hampering the appetite of investors.
- An increasingly pro-oil stance of the Sunak administration in the UK might trigger a surge in new FIDs in 2024, with Rystad Energy expecting 14 new oil and gas fields to be approved, amongst them Rosebank, Cambo, and Clair 3.
- The UK still has a lot of catching up when it comes to exploration activity as Norway continues to drill 35-36 wells per year, whilst wells spudded in British waters still come in single digits.
5. Wind Weakness Drags Down Europe's Renewable Complex
- The aggregate index of European renewable energy stocks plunged to its lowest level since July 2020, shedding almost 30% since the beginning of 2023, driven by structural weakness in wind power.
- As Denmark's Orsted announced it could relinquish its US offshore wind projects and take on huge impairments, the stock plunged almost into double-digit losses in just one day of trading.
- Another key wind developer Vestas (CPH:VWS) saw its outlook sour significantly after Barclays downgraded it to underweight and suggested its target price is 37% lower than its last close, at €20 per share.
- Danish companies play an oversized role in wind energy projects, largely thanks to Denmark's early start in wind that led it to a 55% market share in power generation, and their problems will impact the future of US projects - with eight of the 16 offshore wind projects currently developed in the US being managed by Orsted.
6. Strong Indian Demand Moves Australian Coking Coal Out of China's Reach
- Coking coal prices continue to diverge in the Asian region as Chinese CFR import prices soared above FOB Australian quotes, with China already buying 25 million tonnes of coking coal this year, roughly equivalent to the 2022 annual tally.
- Australian coking coal prices have been trending around $270-275 per metric tonne recently, some $30/mt higher than CFR Chinese prices, as strong Indian demand is limiting volumes available for exports elsewhere.
- Consequently, increasing Chinese imports are mostly coming from higher Russian and Mongolian imports, in turn eliminating previously existing discounts on Russian met coal.
- India's imports of Australian coking coal soared to the highest level since November 2021 in July, at 4.5 million tonnes, with Australian exporters expected to surpass last year's export tally of 158 million tonnes thanks to strong demand from Japan and India.
7. Europe's Hydrogen Boom Gives Legacy Ports New Meaning
- Boosted by the European Union's 17 billion investment package, ports across Europe are now racing to develop hydrogen production and transmission capacities that could feed inland sources of consumption.
- As part of the RePowerEU strategy, the 27 members of the EU pledged to produce at least 10 million tonnes of renewable hydrogen by 2030 and concurrently import another 10 million tonnes from abroad.
- The port of Rotterdam alone plans to provide Northwest Europe with at least 4.6 mtpa of hydrogen, accounting for roughly a quarter of the overall EU goal, triggering fierce competition for eligible EU funds as Brussels also set aside 5 billion for cross-border links.
- Northern coastal areas might be enjoying a long-term competitive edge due to stronger winds and sophisticated port infrastructures that would be easier to refurbish, with Antwerp-Bruges as well as German ports planning large-scale capacity expansions.