With tanks filling to over 80% of capacity over two months ahead of schedule, Europe is anticipating healthy levels of gas supplies heading into the winter. Demand for jet fuel is anticipated to rise throughout Asia as a result of the predicted recovery of China’s aviation sector. S&P Global Commodity Insights editors are also keeping an eye on US aromatics stockpiles, California’s power demand, India’s rice export regulations, and rebar pricing in Turkey.
1. EU gas storage reaches November target ahead of time
What’s happening?
On August 29, EU gas supplies surpassed 84 Bcm, and gas tanks in the area are now more than 80% full, according to GIE AGSI. The initial goal, set after Russia invaded Ukraine, called for gas storage facilities to be at least 80% full by November 1.
What’s next?
If net gas storage injections across the EU continue at the current high rate, EU gas tanks could be overflowing by the end of October, and they could still reach close to 90% of capacity before November if net storage injections slow down to rates more in line with the five-year average. The amount of Norwegian gas flowing to Europe, the arrival of LNG, and any improbable increase in Russian gas flow through the Nord Stream pipeline or the Ukrainian transit route are important aspects to monitor to sustain net injections at a high level.
2. Asian jet fuel demand expected to rebound strongly in 2023
What’s happening?
The aviation industry is still returning to normal, although regional recovery has been unequal. Asia has lagged, especially in the first half of the year, primarily as a result of China’s sporadic lockdowns due to its adherence to the “dynamic zero” COVID-19 policy. According to the Association of Asia Pacific Airlines, regional airlines carried a combined 11.3 million foreign passengers in July, breaking the 10-million threshold for the first time since February 2020. Despite this, there were 66% fewer passengers than there were in the equivalent pre-pandemic month.
What’s next?
As nations open their borders to foreign tourists, kerosene/jet is expected to be the primary driver of global oil demand in 2022, contributing to one-third of the growth. Asia is anticipated to contribute 18% of the rise in global kero/jet demand this year with an H2 comeback, rising to 63% in 2023 with China back in the picture. Despite this expansion, Asia’s demand for jet fuel will still be 17% lower in 2023 than it was in 2019, as it will take some time for international and leisure travel to fully recover.
3. Turkish rebar offers jump following 50% rise in energy cost
What’s happening?
In response to recent hikes of at least 50% in gas and power prices, which in turn increased the cost of scrap melting to create steel via the electric arc furnace route, Turkish rebar producers substantially increased their export bids by $20-$40/mt on September 1. The minimum price for the new export rebar offers has increased to $685/mt FOB Turkey. Following the offer boost, there was no increase in purchasing activity. Turkish producers are being pushed by the circumstances to look for ways to lower the price of other inputs.
What’s next?
Turkish mills are anticipated to maintain their higher rebar offerings for a while to prevent serious margin erosion, given that energy costs are unlikely to decrease anytime soon and scrap prices are predicted to remain stable. For the higher bids to be taken seriously, the export rebar demand must pick up, which has been quite sluggish lately. Turkish steelmakers may be obliged to impose additional production reductions if finished steel sales are not improved and input prices remain high.
4. What California’s ICE car ban could mean to power demand
What’s happening?
The planned Advanced Clean Cars II, which would have prohibited the sale of new internal combustion engine passenger vehicles in the state by 2035, was approved by the California Air Resources Board on August 25. Beginning in MY 2026, the legislation mandates that 35% of new vehicle sales be zero-emissions, with a transitional aim of 68% in MY 2030. The majority of this requirement is in line with State Governor Gavin Newsom’s Executive Order N-79-20, which was issued in September 2020 and established an aim for all in-state sales of new passenger vehicles and trucks to be zero-emissions by 2035.
What’s next?
If the 100% ZEV sales target is met, this decision may result in a decrease of approximately 5 million ICE vehicles from the state’s on-road fleet and an increase of over 14 million EVs. Although the targets may increase demand on the California electricity grid, they will assist to increase clarity around previously declared greenhouse gas emission reduction goals, notably in the transportation sector.
5. Indian rice market is unnerved as the government continues to mull export restrictions
What’s happening?
In light of conflicting reports citing unnamed government sources regarding the nation’s rice export policy, buyers are pulling back from the Indian rice market. Although rumours have been swirling for months, a new article claimed that the government intended to forbid the export of broken rice. Platts Indian 100% broken white rice closed on September 2 with a week-over-week assessment of $325/mt FOB.
What’s next?
The pace of Kharif or main season crop planting, which has been slowed down by irregular rainfall, will be closely monitored by participants as ban rumours continue to spread. Data from the government show that as of August 26, there were 36.8 million hectares of the planted area, which is 7.4% less than usual.
6. US aromatics prices face further downward pressure
What’s happening?
Producers of aromatics along the US Gulf Coast have been fighting hard against falling prices brought on by a drop in blending demand that also appeared to be harming other octane enhancers. Prices for toluene and mixed xylene exceeded pre-pandemic levels at their peak in June, but as the summer driving season draws to a close, they have been significantly declining. The US Energy Information Administration said that inventories were at their lowest level of the year in the week ending August 26 at 196.1 million barrels.
What’s next?
Toluene and mixed xylenes are not anticipated to experience significant price increases. The season for producing gasoline with higher Reid vapour pressure has begun, favouring other blending ingredients. There may be opportunities to increase aromatics inventories, but if demand does not keep up with supply, prices may fall even more.
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Source: S&P Global
