On this week's S&P Global Commodity Insights' Market Movers Asia with Analyst Lucy Tang: Commodity markets continue to feel the impact of the Russia-Ukraine conflict with Asian buyers looking for alternative options as global supply chains reel from the threat of wider sanctions.
*Oil prices surge amid talks of Russian oil ban (00:16)
*LNG and coal prices are soaring on fears of disruption in trade flows (01:54)
*Exports of China's hot-rolled coil steel is expected to increase (03:10)
*Spotlight is on China's Two Sessions (04:07)
*Australian wheat prices surge as buyers look for alternatives to Russian and Ukrainian wheat (05:01)
This week: Commodity markets continue to feel the impact of the Russia-Ukraine conflict with Asian buyers looking for alternative options as global supply chains reel from the threat of wider sanctions.
Starting with oil, crude futures rallied as the week opened in Asia with front-month Brent hitting a high of 139.1 dollars a barrel and NYMEX 130.5 dollars a barrel. They were reacting to news that the Biden administration is discussing with its European allies a potential ban on Russian oil imports in response to Russia's military invasion of Ukraine. Crude retreated in morning trade after hitting those highs.
India, China, South Korea and Japan have announced plans over the past few days to release barrels from their strategic petroleum reserves. The release of strategic petroleum reserves is aimed at reducing the cost burden for refiners and consumers overall, at a time when oil prices are surging.
Meanwhile, Asian crude traders will closely monitor the Far East Russian sweet crude market this week. Asian refiners and trading companies fret that sweeping sanctions on Moscow could lead to challenges when purchasing Sokol, ESPO and Sakhalin Blend cargoes. Some Asian refiners, who regularly purchase Far East Russian crude, are preferring to pick up cargoes from non-Russian equity holders.
That brings us to our social media question for the week: Do you think oil prices will trend higher in the coming weeks as the Russia-Ukraine conflict continues? Share your thoughts on Twitter and LinkedIn.
Meanwhile, Asian importers of LNG and coal will be on the edge as the Ukraine crisis shows no signs of de-escalation. Asia's coal and LNG prices hit record highs in the past week. Commodity traders expect further disruptions in trade flows in the coming days. Uncertainties around spot trade for Russian LNG and coal are expected to continue as sanctions on Russian entities get tougher and ambiguity around shipping and trade finance grows.
On March 3, the Platts JKM for April surged more than 10 dollars to a historic high of nearly 60 dollar per MMBtu, S&P Global Commodity Insights data showed. It was driven by a raft of announcements from oil majors like BP, Shell and ExxonMobil that they were exiting Russian investments, including LNG projects like Sakhalin 1 and 2. Australian coal prices have surged to record highs amid a rise in demand from European markets and persisting supply tightness.
Moving to metals, overseas demand for Chinese hot-rolled coil steel is seen robust, as buyers from Asia, Middle East and Europe look for an alternative to Russian and Ukrainian products. However, the surge in HRC exports has led to discussion in the market that China may soon impose an export tax to cap steel exports. China had started capping its steel production and steel exports since 2021 as part of its decarbonization plans.
In nonferrous metals, China's primary aluminum prices are expected to stay elevated in the near term. It comes at a time when seaborne prices are soaring due to fears of tight global supply amid widening output curbs at European smelters.
Staying with China, all eyes will be on the country's largest annual parliamentary gathering, called the Two Sessions. The week-long gathering, which commenced on 4th March, saw China set its official GDP growth target at 5.5 per cent for the year. The official government report released over the weekend also indicated that China would pursue proactive policies on infrastructure construction and ease rules related to property markets to boost economic growth.
New energy policies on carbon and hydrogen could make an appearance, along with renewed focus on energy security due to the Russian invasion.
And finally, in agriculture, grain markets are closely watching the Russia-Ukraine conflict, which has hit wheat shipments from the Black Sea region. Both Russia and Ukraine are among the world's top wheat suppliers. As buyers look for alternative origins, prices of Australian prime wheat have surged to a record high. They are expected to remain high amid the conflict.
Thanks for kicking off your Monday with us. Have a great week ahead!