This week on S&P Global Platts Market Movers in Asia with Geetha Narayanasamy, head of Asia-Pacific Editing Desk:
* US-China tensions on the rise
* China on US soybean buying spree
* Chinese demand for Russia's ESPO blend wanes
* Metals market await details on China's PMI
* Clean tanker market hope for recovery
Market Movers Asia, Jul 27-31: Escalating US-China trade tensions may hinder oil demand recovery
This week: the impact on US-China trade amid rising tensions, declining price differentials of Far East Russian crude grades and China's shopping spree for US soybeans.
But first, escalating tensions between Washington and Beijing will keep oil, LNG and other commodity markets on tenterhooks this week.
Traders will be looking out for the next political development after China ordered the closure of the US consulate in Chengdu, in a tit-for-tat move after the US forced the Chinese consulate in Houston to cease operations. This rise in tensions could damage recovering commodity trade flows between the world's top two economies.
This brings us to our social media question this week: Will rising US-China tensions dampen recovery in the oil market? Share your thoughts on Twitter with the hashtag PlattsMM.
US-China tensions are also the agriculture market's main focus this week.
China has been on a buying spree for US agricultural products, in a signal seen as fulfilling its commitments under the Phase 1 trade deal with the US. The Asian country has been making large US soybean purchases, with flash sales hitting almost 3 million metric tons in July alone. It remains to be seen if this trend will change amid the escalating tensions. With Brazil close to running out of exportable soybean supplies, analysts expect China to continue seeking US-origin new crop beans to cover its demand.
Chinese demand is also key in crude oil markets this week. Price differentials for several Far East Russian grades, including ESPO Blend, could extend their declines this week, as China's independent refiners have curtailed purchases for the September-loading cycle. This is due to high stockpiles, and weak domestic refining margins.
ESPO crude is especially sensitive to Chinese demand. More than 70% of its monthly term and spot supplies are typically exported to China. The ongoing port congestion in China due to record-high crude imports in the second quarter, has deterred many independent refiners from actively picking up feedstocks for September. This has put immediate pressure on ESPO spot prices.
On metals, market participants will be keeping a close eye on China's Purchasing Managers Index for July, sincethe manufacturing sector is a major metals end-user market. It will also give some clarity on the country's economic situation. China's GDP growth had flipped to positive territory in the second quarter with a 3.2% rise, following a 6.8% contraction in Q1.
Another positive result, will further support steel and metals prices in China, which in turn, will give a boost to raw materials such as iron ore and alumina.
On July 30th, the last of the major iron ore producers – Fortescue Metals Group – will report shipments and production for the April to June quarter. Data from cFlow, Platts trade-flow software, indicates it will be a strong export quarter for FMG, which is usually the case in the quarter that rounds out the Australian financial year.
Now, some positivity is expected in the shipping market as clean tankers head for a revival. This, after rates slumped to multi-year lows in the last month. Once again, there is demand to move oil products from China to other Asian countries. This is expected to give the much needed boost to shipowners, who have been reeling under paltry earnings.
Finally, please check out Platts Live. Platts Live is a virtual alternative to our face-to-face events and forums. It has been created to allow our customers to continue to engage with us and each other. You can access it at spglobal.com/platts-live.
Thank you for kicking off your Monday with us. Have a great week ahead!