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Market Movers Asia, Sep 21-25: Oil producers rethink Asia-Pacific sales strategies

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Watch: Market Movers Asia, Sep 21-25: Oil producers rethink Asia-Pacific sales strategies

The highlights in Asia this week on S&P Global Platts Market Movers, with Associate Editor Shilpa Samant:

** Oil producers reassess sales strategies as Japan's crude imports drop

** Winter demand to drive LNG prices

** Close watch on Chinese import quotas for seaborne coal

** Steel and iron ore markets on wait and watch mode

** China surprises market with grain quota roll over

** New paraxylene capacity coming online in October

View Full Transcript

Oil producers rethink Asia-Pacific sales strategies

This week: winter demand seen driving LNG prices, possible relaxation of Chinese import quotas on coal, and steel buyers on "wait and watch" mode ahead of China's National Day holiday.

But first, crude oil producers across the Middle East and Asia Pacific will be reassessing sales strategies in Asia, after Japan -- the region's third biggest petroleum consumer -- said its crude imports are on course to fall to the lowest level in decades for the rest of 2020. Japan's July crude imports, plunged nearly 32% on year to just over 2 million b/d, the lowest in a month in more than 50 years, as a second wave of coronavirus infections hits demand. The scramble for Asia's market share comes after Saudi Arabia's energy minister on Sept. 17 said he has secured commitments from OPEC+ deliver on their pledged crude production cuts by the end of the year. The OPEC+ coalition in August rolled back its historic 9.7 million b/d production cut accord to 7.7 million b/d and is scheduled to relax it further to 5.8 million b/d at the start of 2021.

This brings us to our social media question of the week: Do you think OPEC+ countries' latest commitent to honor supply cuts by December will support crude prices? Share your thoughts with the hashtag PlattsMM.

On to generating fuels, coal market participants will keep a close eye on any possible relaxations of Chinese import quotas. This may further support seaborne coal prices, as Chinese domestic coal continues to tick higher on winter stocking. According to sources, supply constraints in the mid-high heating value segment of seaborne Newcastle and Kalimantan coal may help to buoy FOB export prices. Australian coal prices may also inch higher amid firm demand from northeast Asia and China.

In LNG, eyes are also on winter demand which is likely to support Platts JKM prices through February, according to Platts Analytics. Platts JKM rose above $4.8/MMBtu last week and analysts forecast winter highs of over $6/MMBtu. For now, high inventories and fewer US cargo cancellations are keeping markets well supplied. And a contraction in industrial activity could put as much as 40 million cu m/d of Chinese natural gas demand at risk. But prices are expected to recover globally once winter demand sets in.

Now in metals, buyers are likely to take a "wait and watch" approach ahead of China's National Day holidays next week, which could see steel and iron ore prices weaken further. Chinese steel and seaborne iron ore prices have weakened in the past couple of weeks partly due to China's tightening credit conditions and trying to take the heat out of the country's property sector. Steel inventories have risen quickly as demand has tapered off.

China is also the main focus grain market participants as they keep a close watch on the latest developments after Beijing kept its tariff rate quota for importing corn, wheat and rice in 2021 unchanged from 2020 levels, amid its recent buying spree of US agricultural products. The move has surprised many analysts who were expecting easing of the quota in the range of 10-25 million mt. China is already seeing tight supply situation as corn demand has been increasing while its auctions from state reserves are getting sold out, leading to record high domestic prices.

And finally in petrochemicals, new paraxylene capacity in China could further impact an already oversupplied market. The latest addition to China's paraxylene capacity will be Sinochem Quanzhou's Fujian unit with 800,000 mt/year expected to come online in October.

Thanks for kicking off your Monday with us, and have a great week ahead.