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Factbox: India's COVID-19 resurgence clouds energy, metals and agriculture outlook

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Factbox: India's COVID-19 resurgence clouds energy, metals and agriculture outlook

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Platts Analytics revises down India's oil demand growth by 40,000 b/d

Traders fear disruption to Indian seaborne pellet exports

Agriculture, allied activities exempted from restrictions so far

Singapore — The steep surge in India's COVID-19 cases has not only taken a toll on the country's energy, metals and agriculture markets, it has also cast a shadow on the international price outlook of some commodities.

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With India reporting about 300,000 cases daily for many consecutive days, analysts have revised down consumption numbers of some commodities.

S&P Global Platts Analytics has said India would witness a year-on-year oil demand growth of 400,000 b/d in 2021, lower than an earlier estimate of 440,000 b/d.

Analysts fear India's city gas demand could drop by 25%-30% in the coming months.

While steel production has not been affected, localized lockdowns have stagnated market demand for agricultural commodities in some pockets. Although agriculture and allied activities have been exempted from government restrictions so far, several markets remain closed.

India's oil demand growth

TRADE FLOWS

Oil and gas

  • Refiners are unlikely to pick up much spot Middle Eastern crude over the June and July trading cycle as they cautiously watch impact on demand. This pulled down the Dubai crude market structure to a nine-week low late April.
  • Crude consumption could see a short-term drop, but analysts do not expect a big reduction. Crude imports fell 10.3% year on year to 201.5 million mt in 2020 when the pandemic took a huge toll on oil products demand.
  • Run cuts may not be substantial as export demand remains robust. The spike in COVID-19 cases has raised expectations that gasoline exporters would shift more motor fuel into the regional market.
  • LNG buyers are not focusing on fresh spot deals, or signing long-term contracts. Spot demand has been curtailed since the start of April and end-users are backing away from previously issued tenders.
  • At least four LNG carriers originally headed for India have been diverted to Europe and the Middle East, according to data provider Kpler. Three cargoes were diverted to Europe, while one was diverted to the Middle East.

Metals

  • Indian seaborne pellet prices are facing upward pressure amid concerns that the COVID-19 situation could potentially disrupt pellet exports. Some traders are seeing slight delays in port loading operations due to manpower shortage.

Agriculture

  • Agricultural exports for commodities, such as sugar, are steady.
  • India's appetite for palm oil may be impacted as nearly 60% of the country's consumption comes from hotels, restaurants and food catering sectors.

INFRASTRUCTURE

Oil and gas

  • Refiners have cut run rates slightly and may fall further as regional lockdowns threaten mobility and industrial activity. Run rates remained robust until March, with average runs rising to 99% in March from 97% in February.
  • Some refineries may cut jet fuel and diesel output as aviation and industrial fuel demand will take a hit, while major construction projects were reported to have been put on hold in an effort to avoid crowded work environments.
  • LNG regasification volumes are likely down by more than 10%. There is widespread talk of high inventories at Dahej and Hazira. While spot demand has been affected, there has not been any delays, or cancelations of term contracted cargoes.

India's gas demand by sector

Metals

  • Steelmakers including Tata Steel, JSW Steel and ArcelorMittal Nippon Steel India have announced plans to supply oxygen for medical use, although steel output has not been affected.
  • Steel consuming sectors were, however, undergoing a greater degree of operational cuts due to the oxygen shortage. Maruti Suzuki and Hero MotorCorp, recently announced temporary production shutdowns.

Agriculture

  • Demand of wheat in Indore -- a major trading center in Madhya Pradesh state -- has been hit as the market is shut due to the lockdown imposed by the state government.
  • Some market participants expect total wheat procurement by the government from farmers to surpass expectations as localized restrictions are making it difficult for farmers to sell to private traders. This could potentially tighten supply in the open market and lead to a rise in domestic prices.

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PRICES

Oil and gas

  • As traders fear a slowdown in demand from India, the spread between front month Platts cash Dubai and same-month Dubai swap narrowed to 68 cents/b on April 26, the lowest since 61 cents/b on Feb. 26, Platts data showed.
  • The fall in demand could depress Indian spot LNG prices and widen the JKM-WIM LNG spread. On April 29, the Platts JKM for June was assessed at $8.855/MMBtu, while Platts WIM for June was assessed at $8.23/MMBtu.

Metals

  • Seaborne pellet prices have been rising on supply concerns from India. Platts assessed the spot blast furnace pellet premium to the 62% Fe Iron Ore Index assessment at $66.10/dry mt CFR North China on April 28, up $6.65/dmt from April 21, after adjusting to a 65% Fe basis.
  • The 64% Fe blast furnace pellet was assessed at $230/dmt CFR North China on April 28, up $4/dmt week on week. The premium was assessed at $41.05/dmt CFR North China, up $1.85/dmt week on week.

Agriculture

  • With some markets shut and supplies remaining tight, domestic wheat prices had risen in other trading centers. In Rajasthan's key market, Jaipur, wheat prices increased to nearly Rupees 18,742/ mt($250/mt) against around Rupees 17,769/mt at the beginning of April.

Related video: Indian demand in focus as COVID-19 cases spike