U.S. LNG Exports Heading For An All-Time High

1. Indian Oil Demand Is Firing on All Cylinders

Brushing aside Omicron concerns, Indian downstream players have been ramping up refinery runs and are close to running at 100% (with private refiners already at full capacity).

According to S&P Global Platts, Indian refinery runs will increase by 370,000 b/d next year to a total of 5.2 million b/d, the first time India's annual increments will overtake that of China.

Indian crude imports have risen to 4.31 million b/d last month, the highest they have been since March, with Middle Eastern producers accounting for roughly 75% of supplies.

With West-to-East arbitrage improving amid a strengthening Dubai complex, Indian refiners should see an inflow of crudes coming from the Atlantic Basin in the upcoming weeks.

2. US LNG Exports to Hit All-Time High This Month

Source: Kpler.

US LNG exports are set to hit a new all-time high on the back of increasing gas production, reaching at least 6.7 million tonnes of LNG this month, according to vessel fixture data.

With US gas prices still relatively low (Henry Hub front-month futures remain below $4 per mmBtu) gas firms are incentivized to send their volumes abroad where the prices are manifold higher.

Europe has become the largest buyer of US LNG last month, seeing monthly departures total 2.85 million tonnes LNG, a trend that should only fortify with TTF prices swinging above spot Asian LNG prices.

In terms of countries, China has been purchasing the most for three consecutive months already, accounting for roughly 15% of aggregate American outflows.

3. Banned from China, Australian Coal Finds New Home in India

Despite Australian coal being banned from the world's largest coal market in China, producers have managed to find a new key market outlet for their production in India.

Before the Chinese embargo, Australia used to export 3-4 million tonnes of coal to India, this it has been averaging 6 million tonnes (reaching an all-time high of 7.4 million tonnes in October).

While Australia's thermal coal exports are still expected to slide marginally in 2021, down some 2% year-on-year at 198 million tonnes, the prospects of higher flows to Taiwan, Japan or South Korea remains on the table.

In terms of pricing, Australia's high calorific value coal trended only marginally below regional competitors, even occasionally surging past South African quotes in November-December.

4. Graphite Shortage Vexes EV and Battery Makers

Whilst commodity markets writ large continue to follow supply/demand dynamics of main metals needed for electric vehicle batteries, such as lithium or nickel, a recent dearth in graphite supply uncovered another strategic weakness.

Graphite, in both natural and synthetic forms, is used to create anodes, i.e. the negative end of a lithium-ion battery, and has very few alternatives to replace it with.

With graphite flakes seeing a 40% price spike in recent months, analysts are expecting graphite to swing into a structural deficit next year, at some 20,000 metric tonnes.

Considering that some 70% of all graphite comes from China, Beijing's recent moves to organize a showpiece Winter Olympics Games amid lower-than-usual production of highly-emitting industries would most probably only strengthen the tightness sentiment.

5. European Gas Supplies to Remain Tight into 2022

European gas prices surged to their highest-ever level this week, moving past the threshold €135 per MWh, upon the news of Europe seeing its first bout of cold weather starting next week.

Asian prices have been trending the opposite direction on the back of gas storage reaching levels too high to maintain robust buying, making European hub prices the most expensive globally.

Not only has European gas storage seen drawdowns steeper than usually - 14 billion cubic metres since the beginning of November - it still faces unprecedentedly low inventory levels, 62% currently.

Analysts expect that by the end of the winter season in end-March, European gas stocks would fall below 15% of capacity, by far a historical low.

6. Lithium Prices Still Not There to Peak

Lithium prices have probably seen the largest appreciation this year across the commodity spectrum, with lithium carbonate prices gaining some 415% since the start of 2021.

Currently assessed at $32,600 per metric tonne on a CIF Asia Pacific basis, lithium prices are expected to continue their surge in 2022, too, as market tightness is expected to remain in place.

Platts Market Intelligence expects lithium markets to suffer a supply deficit of 5,000 metric tonnes LCE in 2022, with total chemical supply forecast to total 636,000 metric tonnes.

Chile, Australia and Argentina will see most 2022 supply increments; however, it seems that the supply response is bound to be fundamentally slower than the assumed 30% annual demand growth.

7. European Carbon Prices Almost Triple This Year

With December 2021 options expiring on December 15 at a little more than €80 per metric ton of CO2 equivalent ($90/mt), European carbon prices continue to slash profits of EU power generators and oil refiners.

Normally, the option expiry would trigger a downward correction once the speculation subsides, however the recent spike in European hub gas prices have kept carbon prices largely unchanged.

With inexorably high gas prices rendering European clean spark spreads negative despite soaring electricity, coal burn has been on the rise for the past months, putting a floor under carbon prices.

Pressure is growing within the European Union to limit carbon trading to compliance participants exclusively, i.e. to ban speculative traders, spearheaded by Spain and Poland.