The energy crisis in China has some clear winners as coal and liquefied natural gas (LNG) prices soar to record highs, but for other commodities the outlook is more mixed and depends on how the crisis progresses.
Chinese authorities have been scrambling recently to ensure that the world's second-largest economy has adequate fuel supplies for the winter, basically urging traders and utilities to do whatever it takes.
As assessed by commodity price reporting agency Argus, it is not surprising that reference Australian thermal coal prices in the port of Newcastle are at a record high of $203.65 per tonne for the week to 1 October, up 12.7% from the previous week.
LNG-AS spot LNG prices in Asia also jumped to a record high last week, reaching $32 per British thermal unit (mmBtu) amid reports that some cargoes were up to $36 per mmBtu.
These prices indicate a certain level of despair as Chinese buyers try to secure cargo ahead of winter demand.
But the current rally is also likely to be temporary and not lasting beyond winter, given that fuel demand will decrease as the cold weather eases and China may increase domestic coal production by then and even increase local natural resources.
However, the secondary effects from the current energy crisis may be longer lasting.
Which commodities will be affected will largely depend on how China chooses to allocate its electricity demand over the winter.
Current indications are that producers of primary metals will be asked to make more cuts than secondary users, such as producers.
If that's the case, it should mean that China will see lower production of metals like steel, aluminum and refined copper.
But if consumers of these metals, such as manufacturing and construction, can continue to operate to sustain and sustain economic growth and employment, it will serve to drive up prices as supply is constrained.
This could benefit metal producers outside of China, especially those operating in countries where energy prices are not rising.
Comments
No comment yet.