Column: India shows early signs of high coal, LNG and crude prices hurting demand: Russell

A worker shovels coal into a supply truck at a construction site on the outskirts of Ahmedabad, India October 25, 2018. REUTERS/Amit Dave//File Photo

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LAUNCESTON, Australia, Feb 1 (Reuters) – One of the key questions for the outlook for energy commodities is how quickly current high prices are translating into demand destruction.

Although it varies from country to country, India may be a bit of the canary in the coal mine, as the South Asian giant tends to be more price sensitive than many other major buyers. of raw materials in Asia, the world’s leading importing region.

There are early signs that India’s demand for coal and liquefied natural gas (LNG) is struggling, and while demand for crude oil has looked solid in recent months, there are some important caveats to the work.

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India is the world’s second-largest coal importer behind China, and imports in January are estimated by commodity consultants Kpler to have fallen to the lowest level since June 2020, when the country was battling the worst of the initial outbreak of the coronavirus pandemic.

India imported 12.4 million tonnes of all grades of coal in January, according to Kpler, compared to 12.6 million in December and 16.1 million in November.

Part of the reason for January’s weakness is believed to be the lack of available shipments from Indonesia, after Jakarta imposed a month-long export ban to ensure domestic supplies.

But the sharp rise in prices will also have dampened India’s enthusiasm for imports, with the benchmark price of thermal coal, Australia’s Newcastle Index, rising from a recent low of $153.10 a tonne to the mid-November to a record high of $261.11 the week before January 28.

Australia has become India’s biggest coal supplier after China banned imports from the country amid a political dispute with Canberra, leading Chinese buyers to buy more Indonesian shipments , depriving India of supplies from the Southeast Asian nation.

Looking specifically at thermal coal, India’s imports of power generation fuel from Australia were just 764,679 tonnes in January compared to 1.1 million in December and 2.1 million in November.

SLIDING LNG

India’s LNG imports are also trending lower, with Kpler estimating arrivals in January at 1.73m tonnes, down from 1.91m in December and 1.85m in January 2021.

India tends to buy more super-chilled fuel on spot or on short-term cargoes, and will therefore have been exposed to a record price spike late last year, when New York=- futures trades tied to S&P Global benchmark Platts JKM hit $49.35 per million British thermal units (mmBtu).

The spot price has since slipped to close at $24.71 per mmBtu on Monday, but it’s worth noting that’s still about three times what it was at this time last year.

Natural gas in India is used for emergency power generation and for industrial applications such as fertilizer manufacturing, and at current spot prices consumers will find it uneconomical to use this fuel .

The only area of ​​strength in India’s energy imports appears to be crude oil, with Kpler estimating January arrivals at 4.59 million barrels per day (bpd), and Refinitiv Oil Research even more optimistic at 5.04 million. bpd, which if confirmed would be a record. month.

Imports are up from 4.65 million bpd in December and 4.48 million bpd in November, according to Refinitiv, as India’s economy recovers from pandemic shutdowns and refiners bring more capacity online .

However, gains in India’s crude oil imports are not necessarily linked to the domestic market recovery, with data from Kpler showing that exports of major refined fuels are also increasing.

Shipments of diesel, gasoline, jet fuel and naphtha were 31.24 million barrels in January, according to Kpler.

Although this figure is lower than December’s 34.94 million barrels, the last two months have been the strongest since May and June of last year.

Indian refiners are enjoying strong profit margins on refined fuels in Asia, with the margin at a typical Singapore refinery producing gasoil, the cornerstone of diesel and jet fuel, hitting $16.98 a barrel on January 28, the highest high since October 2019.

Profit on a barrel of gasoline is down from recent highs just below $19 a barrel, but at $11.49 on Monday, it’s more than three times what it was at the same time l last year.

Lower product shipments from China have boosted margins at other Asian refiners, but if profits come under pressure from rising Chinese exports, some of India’s current crude demand could be at risk. .

It should also be noted that Indian crude oil is usually bought six weeks to two months before delivery, so January imports are more reflective of the price of two months ago when Brent futures were around $68 a barrel, well below $89.31 in early Asian trade on Tuesday.

GRAPHIC – Indian imports of coal, LNG and crude oil: https://tmsnrt.rs/3KVWHpg

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Editing by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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