The highlights on S&P Global Platts Market Movers Asia, with Mriganka Jaipuriyar, head of news:
* China, India to lead post-COVID demand recovery
* Qatar, US LNG suppliers to battle for Asian market
* China's trade relations with the US and Australia to remain in the spotlight
* Food security concerns likely to remain
* Manufacturing will be a major driver of metals demand
Also on Market Movers:
- Europe: Oil demand recovery and sustainability goals to drive commodity markets in 2021
- Americas: Oil production, climate policy to be key energy themes in 2021
It is with cautious optimism that we bid farewell to 2020 with the rollout of coronavirus vaccines altering the outlook for the global economy. S&P Global Ratings recently said that its forecasts have stabilized for the first time since the pandemic began and while considerable uncertainties remain, the risks to growth are more balanced.
So what does this mean for commodities in the coming year? One thing is clear, Asia, more specifically China and India, will lead the post-COVID demand recovery in 2021.
S&P Global Platts Analytics expects oil demand growth in China and India to be a little over 1 million b/d, accounting for 16% of total global oil demand growth next year. China had a good run with crude oil imports, lifting them by 9% in 2020 as rock bottom prices prompted strong buying in the year. But will this trend continue in 2021? On the one hand, China's refining capacity continues to expand, but higher crude oil prices and high domestic inventory levels may cap import.
Middle East crudes will remain in favor in with refiners in China, Japan and South Korea. The three countries put a brake on their import diversification efforts in 2020 and, as you can see on this chart, refiners there continue to see Middle Eastern grades as the most reliable and economical feedstock options in times of market uncertainty.
This is good news for OPEC producers who have a tough balancing act to play next year.
Like much of the energy sector, 2021 will be the year that the LNG industry returns to normalcy. Spot JKM prices, which recently hit multi-year highs of over $12/MMBtu, are likely to prompt emerging Asian buyers to reassess their procurement strategies, and trigger a fresh round of negotiations with producers. LNG supply projects, many of which failed to clear FID in 2020 due to the pandemic could finally see the light of day in 2021. New sources of LNG demand from small-scale LNG to LNG bunkering will continue to emerge.
Big suppliers like Qatar and the US will intensify efforts to capture the Asian market. India and China will remain the cornerstone of Asia's LNG demand growth, with key policy frameworks taking shape to build downstream markets. Countries like Vietnam, Philippines and Myanmar are expected to make some significant moves towards new regasification in 2021 and gas market liberalization over much of Asia Pacific will accelerate.
On to the metals space, eyes are on iron ore after prices soared to seven-year highs in December on strong restocking, stoked by supply shortage fears and high Chinese steel prices. Manufacturing will be a major driver of metals demand and prices as the sector recovers globally from the pandemic. Even as China tightens its property markets potentially lowering metals demand for property construction. Platts expects China's crude steel production to rise 2% on year in 2021 to around 1.07 billon mt.
Meanwhile, China is not expected to reverse a ban on Australian coal and copper imports in the near-term, and that relationship could get worse before it gets better. As Australian iron ore accounts for more than 60% of China's 1 billion mt of annual imports, the steelmaking raw material should be safe from any bans. But China can choose to buy thermal coal from Indonesia, Russia and others, while it has its own metallurgical coal supply.
The growth spurt seen in Asian grain demand in the second half of 2020, led by China, is expected to maintain the momentum heading into 2021, but concerns over food security are likely to remain due to the pandemic-induced economic slowdown and unfavorable weather in some key producer regions. For example, grain supply curbs from major exporter Russia in the early part of 2021 are expected to add to market jitters. Markets will continue to keep an eye on China's increasing appetite for grains on the back of growing feed demand and trade relations between China and the US and Australia will continue to be in the spotlight.
And that's a wrap for Platts Market Movers Asia in 2020. Thanks for kicking off your Monday with us. Happy holidays and have a great year ahead!