Spot trading activity in the Asian LNG market may remain thin until the end of next week as a result of the extended lunar new year holiday in China. Chinese authorities extended the holiday because of the coronavirus outbreak that originated in the central Chinese city of Wuhan, Hubei province.
But the impact of the outbreak on LNG spot trade and prices remains unclear, amid an already weak spot market.
Market participants have little choice but to await the market impact on Chinese demand once businesses resume operations, with phone calls to Chinese counterparties largely going unanswered. Beijing extended the lunar new year holiday to 2 February to contain the spread of the virus.
But some market participants are bracing for a possible rescheduling of cargoes once Chinese firms return. They fear that a drop in industrial production could hit domestic downstream demand if factories remain shut after the holiday, particularly in cities where China has imposed a lockdown. The lockdown is imposed on cities in the Hubei province, where Wuhan is the capital.
"We think Chinese buyers may need to reschedule cargoes or re-direct them once they are back to work. These will probably be March cargoes not prompt," the head of LNG trading at an international firm said. "There is nothing we can do now, so we are focusing on our other positions further down the curve."
Market participants are unclear as to whether deliveries, prompt or forward, to China will be affected, and if cargoes would be redirected to other Chinese ports or offered in the spot market to other northeast Asian buyers. A rescheduling or deferral of cargoes could raise LNG charter rates if vessels are required to float and wait for discharge.
LNG charter rates spiked in late October on the back of tight vessel availability, following US sanctions on China LNG Shipping International vessels. LNG charter rates have since fallen, with the Argus assessment for TFDE freight day rates for the east of Suez at 27 January at $75,000/d, down by 44pc from $135,000/d on 24 October.
There is no shortage of spot cargoes in the LNG market, and this, coupled with lacklustre demand from northeast Asian buyers, has put downward pressure on spot prices. A few Chinese buyers were active in the spot market ahead of the lunar new holiday and many are expected to be well covered until March.
China's state-owned Zhenhua Oil on 18 January bought three cargoes for delivery in May, July and the end of October, paying a high $3/mn Btu, $4/mn Btu and $4.80/mn Btu respectively. Guangzhou Gas bought an 8 March delivery to the 6.7mn t/yr Dapeng LNG terminal in Shenzhen on 21 January, possibly paying around $4.10-4.20/mn Btu.
Market participants expect Chinese spot demand to slow, but said that it was not particularly strong because of mild weather and high inventories.
"Even before the coronavirus outbreak, demand from China was not very strong because of mild weather," a trader with an Asian producer said. "If anything, the virus is just another reason for Chinese demand, and prices, to drop even further."
Spot LNG prices for deliveries to northeast Asia, including China, have fallen substantially in recent months as cargoes available for spot deliveries to northeast Asia have outstripped demand.
China's LNG imports rose in December compared with a year earlier, but the growth rate was one of the lowest in recent years, with slower economic growth and a coal-to-gas switch possibly affecting gas demand. China imported 6.34mn t in December, up 2.2pc from the 25pc growth in December 2018.
The ANEA price, the Argus assessment for spot LNG deliveries to northeast Asia, has fallen by 48pc from three months earlier, on 29 October. It stood at $4.125/mn Btu on 24 January for second-half February deliveries.
Weaker oil and European gas hub prices have already dampened the near-term outlook for spot LNG prices. But with spot prices already in the $3s/mn Btu, market participants expect limited further losses.
"The outbreak of the virus clearly has macro implications for China, and globally," a Singapore-based trader said. "But, in terms of spot prices, I do not expect too much further losses with prices already so low."
A few northeast Asian buyers are on the lookout for cargoes. And one, in particular, expects to buy more than their usual monthly volume simply because prices are low and they are using more LNG to generate electricity.
By Camille Klass
