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Energy and shipping disruptions in the Middle East are causing a rise in forward contracts
The price of European forward power contracts increased again on Tuesday as a result of 'higher gas and oil prices'. This was due to the intensification of the conflict between Iran and the United States after Iran targeted ships that were passing through the Strait of Hormuz?. Some energy infrastructures have also been closed. Around 20% of the world's LNG transits the Strait of Hormuz. Traders fear that a suspension or complete closure would lead to a global increase in competition and higher prices for other gas sources. Fox News reported that Iranian officials have vowed to shut down the Strait of Hormuz, but U.S. Central Command has said it is still open despite Iranian officials' statements. Ajay Parmar is the Director of Energy and Refining for ICIS. He said that if we see a prolonged conflict, and the Strait is out of use for a long period of time, then 'all countries will be competing to get every barrel of oil possible and this could push the price of oil up into the triple digits. On Monday, oil and LNG infrastructure was also closed. Qatar has halted production of LNG. At 0858 GMT the German baseload year-ahead contract had risen 5.6% to 85 euros ($98.80), while its equivalent French price increased by 3.5%, reaching 54 euros/MWh. Contracts arose based on the expected fall in wind energy supplies. LSEG data show that the German 'day-ahead basisload?power contract has increased 26.3%, to 131.75 Euros/MWh. The French equivalent contract increased 10.3% at 64 euros/MWh. LSEG data shows that German wind power production is expected to 'fall by 4.8 gigawatts to 5.1 GW on Wednesday, while French wind generation is projected to 'rise by 1.6 GW - to 4.6 GW. The French nuclear power capacity fell by five percentage points, to 79% total capacity, as two reactors were forced offline due to unplanned outages.
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Middle East tensions and LNG stoppage in Qatar lead to a decline across the Gulf
Qatar led the way in early trading on Tuesday, following its halting of liquefied gas production. Middle East tensions were rising and regional energy shutdowns were weighing on risk sentiment. Inflation fears also increased. Israel has intensified its campaign by launching new attacks on Iran and Hezbollah. Meanwhile, Iran launched missiles and drones at Israel, several Gulf States and a British air base in Cyprus. This raises concerns about a possible prolonged conflict. Qatar's benchmark stock index fell 1.2%. This was due to a 2.2% decline in the Qatar National Bank. The largest lender in the Gulf by assets. In a letter sent to the U.N. secretary general and the president of Security Council, the Gulf nation condemned Iranian attacks on its territory. It also said that it reserved the right to retaliate. The index in Muscat fell?more? than 1%, whereas the Kuwaiti index declined by 0.1%. Saudi Arabia's benchmark stock index rose 0.5% bucking the trend. This was boosted by an increase of 1.9% in the oil giant Saudi Aramco, and a 2.8% rise in petrochemical producer Saudi Basic Industries Corp, which Aramco controls 70%. Tuesday, oil prices increased for a third consecutive day as the escalating conflict between Israel and the United States with Iran and the threat to ship through the Strait of Hormuz heightened concerns about supply disruptions in the Middle?East region. Iranian media reported that Iran's Revolutionary Guards Commander said that the Strait of Hormuz was closed on Monday and warned any ship trying to pass that Iran would set it on fire. Saudi budget airline flynas lost 2.9% in its individual stock, as the war erupted and disrupted air travel throughout the region. Bahrain's index remained largely unchanged. The UAE Securities and Commodities Authority announced that the Abu Dhabi Securities Exchange and the Dubai Financial Market will remain closed on the 2nd and 3rd of March, citing their supervisory and regulating mandate over the capital markets in the country. Ateeq Sharif in Bengaluru, Sumana Niandy and Kirsten Doovan edited the report.
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Chinese refiner ZPC reduces runs by 20% due to Iran war tightening crude supply
Zhejiang Petrochemical Corp, ?a major Chinese refiner backed ?by Saudi Aramco, is shutting a ?200,000-barrel-per-day ?crude unit as it brings forward maintenance at a time when the Middle East conflict is tightening crude oil supply, it said on Tuesday. A company representative said that the month-long March overhaul will reduce throughput by 20%. The refinery, which is designed to process 800,000. barrels per day and is one of China’s largest, ran?over its nameplate capacity during February, according to sources. The U.S. and Israeli war against Iran has cut all shipping?into the Strait of Hormuz. This is a conduit that supplies 20% of world oil. Sources in the industry said that China, the world's largest oil importer, sources roughly half of its crude oil from the Middle East. The tightening supply, which is driving up oil prices, will likely encourage other refiners to reduce their production. The ZPC official stated, "We planned to overhaul the system around March and April. Now we are bringing it forward in the current conditions." ZPC, a privately-owned company in China, has a 20 year supply agreement with Saudi Aramco to provide 480,000 barrels per day of crude oil. It operates four crude production units capable of producing 200,000 barrels per day in Zhoushan. Aramco holds a 10% stake of Rongsheng Petrochemical, ZPC’s largest shareholder. ZPC, a Chinese oil company, is a major buyer of Canadian oil. Tanker tracker Vortexa estimates that the Middle East accounts for 75 to 80%?of its total purchases. Industry and trade sources claim that ZPC, unlike many independent Chinese refiners has stayed away from Western-sanctioned Russian, Iranian and Venezuelan supplies. Sun Jianan, an Energy Aspects analyst who wrote in a Monday note that some Chinese refineries heavily dependent on Middle East supplies could reduce?crude run by up to 20%. Sun reported that "Chinese refineries will likely make precautionary cuts to their production as Middle East shipping is at a standstill." Chinese independent refiners have enough oil on hand to weather the near-term disruptions from the Iran conflict. This is bolstered recently by record purchases of Iranian crude and Russian crude, and robust government stocks, according to traders. Reporting by Trixie YAP, Chen Aizhu and Siyi Liu. Editing by Tony Munroe Raju Gopalakrishnan, Clarence Fernandez.
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Iron ore prices fluctuate as investors weigh up rising freight costs versus falling demand
Iron ore prices slid on Tuesday as investors weighed the rising freight costs due to an escalating conflict in Iran, which is preventing shipments through the 'Strait of Hormuz. This was against a?falling demand amid production restrictions by Chinese steelmakers. Iranian media reported that a senior Iranian Revolutionary Guards official stated on Monday that the strait is closed and Iran will fire on any ship attempting to pass. This sent oil prices and shipping costs rocketing. The daytime trading price of the most traded iron ore on China's Dalian?Exchange closed up 0.67% to 753.5 yuan (109.32 dollars) per metric ton. As of 0734 GMT, the benchmark?April Iron Ore traded on the Singapore Exchange had fallen 0.21% to $99.05 per ton. Tomas Gutierrez is the head of data for consultancy Kallanish Commodities. Analysts said that rising freight costs increased the cost of iron ore, which in turn boosted ore prices. Hot metal production, which is a good indicator of demand for iron ore, will likely fall as a result of production curbs at China's annual parliament meeting, starting on March 5. This will keep the price of ore from rising. Some Chinese steel mills had to reduce output to maintain a 'cleaner air' during the important meeting. Portside iron ore stockpiles are at record levels. Also, lowered ore prices. In the afternoon, other steelmaking ingredients gained traction. Coking coal and coke both rose by 4.01% and 3.42 %, respectively, following the surge in oil and gas. The majority of steel benchmarks on the Shanghai Futures Exchange lost ground. The price of wire rod fell by 0.12%. Hot-rolled coils dropped 0.03%. Stainless steel lost 0.39%. Rebar grew 0.07%.
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Rare Earths Norway reports that the estimate of the deposit is now 81% larger than previously estimated.
The estimate of mineral resources at the?mine that Rare Earths Norway is developing, Europe's biggest rare earth project has increased by?81% from the last evalution two years ago, the privately owned firm announced on Tuesday. The Fen project, which is being developed by the company, would help Europe to reduce its dependence on China as the dominant producer of rare earths. According to a WSP statement, the project has?a total rare earth oxide of 15.9 million metric tonnes in indicated and inferred resource,' It added that the 'new estimate' reflects additional exploration drilling which took place in 2018 and compares with 8.8?million tonnes calculated for 2024. SEEMED AS A STRATEGIC?ASSET By nearly doubling the size of its known deposits, Rare Earths Norway is now a strategic asset that can be used in many different ways, said Bernd Schnefer, CEO at EIT RawMaterials. This agency, funded by the EU, focuses on critical minerals. The deposit size is larger than Per Geijer, which was described by LKAB as the largest in Europe in 2023 with a?1.3million tons of rare earth oxides. It?updated its?estimate last year to 2.2 millions tons. According to the company, the latest estimate of the Rare Earths Norway Project reveals that 19% are neodymium oxides and praseodymium oxides (NdPr), which are key minerals for permanent magnets needed in electric vehicles, windmills, electronic devices, and defence applications. It stated that it would produce 2,000 tonnes of NdPr in 2031. In its statement on Tuesday, it did not mention a production volume or a timeline. Reporting by Eric Onstad, Editing by Jan Harvey
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Trump is 'disappointed' to see that the US-UK relationship has changed.
Donald Trump, the U.S. president, said that it was "sad" to see the relationship between the United States and Britain "not what it used to be" after Keir Starmer held back on initially committing military support for the strikes against Iran. Trump said that France was more supportive than he expected and that he never anticipated to see these relationships, which were once the "most solid" of all. It's sad to see the relationship has changed from what it was, Trump said in an interview with the Sun on Tuesday. This is his second interview with a British newspaper within a span of two days that he criticised British Prime Minister David Cameron. Starmer stated late on Sunday that he would permit the U.S. military to use British bases for defensive attacks after they were not used during the initial attack against Iran. Trump said that the U.S. The?Britain is not needed to wage war on the Middle East, but Starmer added that it would not matter. France was great. All of them have been fantastic. "The UK is very different from other countries." Darren Jones, a senior British minister, told?Times Radio that the U.S. and UK relationship remained vital but that the country had learned lessons?from the 2003 Iraq War. He said that one of the lessons learned from 'Iraq' was to only get involved when aligned with international partners and, as he put it, with a legal basis in place. Starmer told the British parliament on Monday that President Trump had expressed his dissatisfaction with our decision to not?get involved? in the initial strikes. But it was my duty to decide what was in Britain's best interests. It is my duty to judge what's in Britain's national interest.
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Sources say that Japan and India are in discussions to explore rare earths together.
Two people who are familiar with the discussions say that Japan and India are in talks to explore rare earth deposits together in Rajasthan's arid state. Tokyo is looking to reduce its reliance on China as a source of magnet manufacturing supplies. India's Mines minister G. Kishan Reddy announced last month that three hard rock deposits of rare earth oxides containing 1,29 million metric tonnes had been identified in Rajasthan state and Gujarat in western India. Sources directly involved in decision-making said that Tokyo expressed interest in the Rajasthan deposits, and planned to send experts there. The sources declined to give their names as the discussions were not public. The experts did not specify when they would arrive. The sources stated that the Japanese government was interested in providing technology and funding for the?extraction of rare earths that would be taken to Japan. The Indian Ministry of Mines, and the Japanese Embassy did not reply to requests for comment. Naoki Kobayashi, Deputy Director at Japan's Ministry of Economy, Trade and Industry, said that Japan was examining mining projects around the world to diversify its mineral supply, which includes rare earths. Kobayashi, however, denied that any discussions were held about specific corporate partnerships or technology in Rajasthan. India, like Japan, wants to reduce its dependence on Chinese imports through the development of industrial-scale facilities that can process rare earth elements at high purity levels. Permanent magnets are used in wind turbines, drones, fighter jets, and electric vehicle motors. They are critical to India, which is the fastest-growing economy on earth. China banned the export of dual use items last week - materials which can be used for both civilian and military uses - to twenty Japanese entities, Beijing claims that they supply the Japanese military. This is the latest in a series of disputes with Tokyo. This move effectively blocks Japanese companies from accessing the seven rare earths?and related materials? that are currently on China's dual use?control list?, as well as a number of other controlled critical minerals? One source said that Japan was seeking to collaborate with Indian companies in order to explore copper, cobalt, and lithium in Africa. (Reporting from Neha Arora, New Delhi; Additional Reporting by Yuka Obaashi, Tokyo; Editing and Mayank Bhardwaj & Sonali Paul).
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Australia warns that there is no need for panic buying petrol in the wake of the Iran War as supplies are high
Australian Energy Minister Chris Bowen stated on 'Tuesday' that there was no need for consumers to be concerned about fuel shortages, despite the growing U.S./Israeli conflict against 'Iran. Bowen, a reporter, told reporters that Australia had 36 days' worth of petrol in reserve, 34 days' worth of diesel and 32 days' worth of jet fuel. This is the highest level of reserves in over a decade. He said that there was no rush to fill up at the service station. "I understand people's concerns, but it's vital that they know we have a good stock of petrol in Australia. There's 'no immediate danger' to petrol supplies in Australia." Tuesday, oil prices increased for the third consecutive day due to fears of disruptions in supply. Israel attacked Lebanon while Iran responded with attacks against energy infrastructure and tankers in Gulf countries. Bowen stated that regulators would act against price gouging, even though petrol prices 'could be under pressure due to a spike in oil prices. He said that panic buying would only make things worse. In a social media post, Treasurer Jim Chalmers revealed that he had written the 'consumer watchdog' to ask it to make sure fuel retailers don’t "use events in the Middle East as a way to price gouge Australians". (Reporting from Christine Chen in Sydney, Editing by Edwina gibbs)
Stocks fall as inflation fears fuelled by Middle East air war cause stock market panic
Investors weighed the impact of U.S.-Israeli strikes against Iran on energy and global economic prices, and the dollar increased on Tuesday.
MSCI's broadest Asia-Pacific index outside Japan dropped 2.9%, extending losses for a second day. The biggest drop was 7.2% in Korean shares as the country returned from its holiday. It was their largest one-day loss since August 2024. Tokyo's Nikkei 225 fell 3.1%, and S&P500 e-minis futures dropped 0.9%.
Rupal Agarwal is Asia Quant Strategist at Bernstein, Singapore. "Economic uncertainty was already high and with the Iran conflict the geopolitical risks are expected to increase too," she said. The last time these two spikes occurred was in 2022, during the Russia-Ukraine crisis. This didn't go well for Asian markets. Wall Street stabilized after a volatile session Monday, which saw the S&P 500 rebound from an initial selloff to finish flat and the Nasdaq composite climb 0.4%. Investors bought the dip in the markets. Donald Trump, the U.S. president, said on Monday that his campaign against?Iran was exceeding expectations. An official of Iran's Revolutionary Guards announced on Monday, with no end in sight to the hostilities, that the Strait of Hormuz was closed to all marine traffic. The?country would fire on any ships trying to pass. The threat was immediately felt, with the cost to hire a supertanker for oil shipping from the Middle East into China reaching a new record of over $400,000 a DAY, according to LSEG 'data.
Brent crude futures rose another 2.3% on Tuesday to $79.50. On the natural gas market, European and Asian benchmark LNG prices soared by about 40% on Monday.
Working through the Risk Scenarios
The surge in energy costs could increase the cost of Asian companies, and impact their profits as well as their stock prices. These stocks have risen sharply this year.
Goldman Sachs analysts wrote in a report that a rise of 20% in Brent oil could result in regional earnings falling by?2%, with large intraregional variations. However, this is dependent on the duration of the conflict. They said that spikes in geopolitical risks tend to have negative effects on the short term, but they dissipate with time. The current increase in geopolitical risks coincides with a regional vulnerability to a corrective action. Energy prices are on the rise, complicating the Federal Reserve's attempts to control inflation. Policymakers have already shown signs of division over the impact artificial intelligence will have on the U.S. Economy. Rubio, the Secretary of State said that the U.S. would take steps to reduce rising energy costs due to the spike in oil prices caused by the conflict with Iran.
ISM manufacturing data, released on Monday, showed that U.S. business activity increased steadily in the month of February. However, a measure of factory gate prices soared to an?almost 3-1/2-years high amid tariffs. This highlighted upside pressure on inflation before even the attacks against Iran.
FedWatch, a tool of the CME Group, shows that Fed funds futures price a 95.4% implied probability that the U.S. Central Bank will maintain rates at the conclusion of its two-day next meeting on 18 March. The odds of the?June rate hold, which were previously less than 50%, increased on Monday, and are now better than a toss of a coin.
Several analysts were optimistic about the impact of the war on the economy, citing limited movements in global markets.
Jahangir Aziz said, "It won't be positive, of course," at a round table for media in Singapore, on Tuesday. He said that any increase in political uncertainty was bad for economies. But right now...we do not really believe that this will?be systemic shock for the global economy." The U.S. Dollar Index, which measures the strength of the greenback against a basket six major counterparts, held near a six-week high at 98.73, as the currency recovered some of its appeal as a safe-haven. The yield on the 10-year Treasury bond in the United States was up by 0.9 basis points to 4.059%.
Analysts from DBS stated in a recent research note that "current market dynamics only show a mild risk off tone. This is not enough to sustain a strong?bid for U.S. Treasury Bonds or to prompt the Fed to make 'quicker cuts.
They added that "the conflict raises the spectre of?stagflation." While energy prices are not at the same level as they were during the beginning of the Russia-Ukraine war in 2022 investors will likely be watching closely the duration and extent to which energy supplies will be interrupted.
Gold fell 0.4% to $5,307.08. Bitcoin dropped 2.1% to $68,937.84 while Ether was down 2.3% to $1,995.50.
Early European trades showed pan-regional contracts down by 0.9%. German DAX Futures were also down by 1.0%, and FTSE Futures were off 0.5%. Reporting by Gregor Stuart Hunter, Rae Wee and Kirovan Donovan: Editing by Neil Fullick and Kirovan Donovan
(source: Reuters)