The highlights in Asia this week, with S&P Global Platts Associate Editor for Asia LNG Masanori Odaka:
** Japan's renewable energy and decarbonization policies to remain in place despite Prime Minister Shinzo Abe's resignation
** Surge in new coronavirus cases dampens transport fuels demand recovery
** Japan's gasoline and gasoil demand in August lowest in decades
** Asia spot LNG prices seek direction ahead of winter peak season
** Hurricane concerns in the US brew mixed sentiments in Asian petrochemical markets
Transport fuels demand outlook remain weak; Japan's energy policy in focus
The highlights this week: motor fuels demand outlook remain weak due to rising cases of COVID-19 in numerous countries, LNG markets seek price direction, and hurricane concerns in the US draw weak sentiments in Asian petrochemicals.
But first, markets are digesting news about Japanese Prime Minister Shinzo Abe's resignation, which he announced late last week. Refining and renewable energy industry sources said Abe's decision to step down wouldn't necessarily lead to any major shift and changes in the country's energy policies. But any possible shift in Abe's strong push for the Olympics could potentially derail the pickup in construction activities and housing property prices seen over the past few years. This could in turn dampen industrial diesel consumption to some extent.
Looking at the wider market now, a second wave of surging COVID-19 cases across Asia and Oceania will likely inject fresh weakness and hinder demand recovery for the transportation fuel markets, as various governments race to prevent further spread of the virus.
Japanese refiners' estimated domestic jet fuel shipments were down by close to 20% in the four weeks to August 22, indicating a slow recovery in aviation fuel demand during the peak summer holiday season. The country's motor fuel demand also hit its lowest in decades this month.
In South Korea, industry sources expect the country's gasoline, diesel and commercial jet fuel demand to take a tumble in the next few weeks. The rise of new cases has prompted the government to call for tightened social distancing measures that is greatly reducing population mobility.
Australia, which imports more than 60% of its gasoline and gasoil requirements, has also re-imposed COVID-19-related restrictions earlier in the month.
Bearish fundamentals have been reflected in the steady decline in the FOB Singapore 10 ppm sulfur gasoil cash differential, which is averaging at minus 31 cents/b month-to-date to MOPS gasoil assessments, slipping sharply from the July average of plus 63 cents/b.
In LNG, the bullish sentiment has somewhat eased after spot prices neared a seven-month high in mid-August. Uncertainty stems from the lack of firm buying interest in Asia, US export constraints due to hurricanes and cargo cancellations, high European gas prices and supply disruptions in the Asia- Pacific region. Looking ahead into the winter, S&P Global Platts Analytics expects spot LNG prices to hit $6/MMBtu during the peak season.
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Similarly, in petrochemicals, market participants are closely monitoring the Asian toluene market as weak demand and hurricane concerns in the US are brewing mixed sentiments. Languid demand had shoved the Asian toluene-naphtha spread deeper into the negative terrain, with the lowest level in more than two decades having registered at minus $24.25/mt on August 25.
In coal, spot enquiries from Southeast Asia were mostly below market price indications with few firm commitments as traders await import prices to bottom out. Delivered prices for the seaborne low-cv materials to Southeast Asia dipped almost $7/mt over the past three months amid tepid Asian demand fundamentals and lukewarm power consumption requirement in the region.
Finally, we hope to see you at the virtual Asia Pacific Petroleum Conference from September 14 to 16. This year's conference features six sessions, which will take you from the macroeconomic environment and the pandemic depression, price volatility, and market uncertainty, to the products markets and petrochemical markets, and even view points from the financial sector. Go to spglobal.com/appec for details and registration.
Thanks for kicking off your Monday with us. Have a great week ahead!