Muted Demand

[Nico Sadiq]

EuropeanLNG regasification projects are set to increase the continent's LNG capacity by 121 million mt/year before the end of the decade, yet with waning European demand and utilization rates at operating terminals below 50%, questions arise to the potential overinvestment and underutilization of the market.

Since then, prices have cooled as Europe ramped up regasification capacity. Platts assessed the DES Northwest European marker for August at $10.09/MMBtu on July 12, or an 8.5 cents/MMBtu discount versus the Dutch TTF gas hub price, Commodity Insights data showed.

David Lewis, an analyst at Commodity Insights, said that "Most of Europe's regas capacity is located in markets that have low utilization like Spain and the UK, which account for around 36% of regas capacity but only 25% of delivered volumes in 2023."

The use of pipeline gas allowed European countries to be flexible in issuing spot deliveries to manage spikes in demand, however, the nature of the LNG market requires forward planning to consider shipping times.

"We expect demand to increase in 2025-2027 for LNG as industrial demand picks up and gas pushes coal out of the power mix ... Some markets such as the UK are expected to see LNG demand increases up to 2025 as it compensates for the loss of UK Continental Shelf production," said Lewis.

West Texas Intermediate slipped 0.4% to settle below $82 a barrel on Monday. Prices have fallen off their monthly highs, with US summer consumption seen as having peaked during the Fourth of July holiday. Lackluster economic data from China is raising concern about demand from the largest crude-consuming country.

In broader markets, an assassination attempt on Republican presidential contender and former President Trump injected more uncertainty into the US election race, while investors ratcheted up wagers that he would win back the White House, aiding the dollar and weighing on treasuries.

Algorithms are also adding to the downward momentum, with TD Securities estimating that a break below $80 in WTI crude could force trend-followers to liquidate nearly 80% of their current long positions over the next week. This suggests that the window for large-scale algorithmic selling is now finally open, Daniel Ghali, a commodity strategist at TD, wrote in a note to clients.

Headline oil price swings have been lackluster of late, with one gauge of volatility falling to the lowest level since 2015. Still, other markers have moved significantly, with key timespreads that provide a gauge of market health surging last week, indicating tighter supplies.

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Given that spot lithium prices were still on a fast downtrend, caution among market participants intensified, with buyers opting to remain watchful until prices stabilize before resuming spot purchases.

On the other hand, consumers also continued to destock in the year end to avoid holding excess inventories for better performance in their annual financial reports, which further undercut any potential spot demand, sources told Fastmarkets.

A major Chinese brine producer reportedly offered discounts on large amounts of technical grade lithium carbonate to boost sales during the recent week, which further weighed down spot lithium prices, sources said.

The fourth quarter of 2023-24 is not going to bring any good news for the Indian IT industry. Going by the global macro cues, the fourth quarter results are likely to reflect the continuation of recent soft demand trends. There, however, is a piece of good news. A recovery in the US economy, which is a major source of revenues for the IT industry here, augurs well for 2024-25.

Research firm Emkay Global Financial Services felt that subpar growth would persist in the fourth quarter as muted demand trends continue on account of weak discretionary spending and cautious behavior by clients, amid uncertain macros.

Kumar Rakesh, an analyst with BNP Paribas Securities, echoes a similar view. He said that IT services demand continued to struggle with constrained discretionary demand as enterprises remain uncertain about the macro economic outlook.

Citing reports of the US economy entering a Goldilocks phase (a phase of sustainable economic growth, low unemployment, and controlled inflation), he felt that the enterprise sentiment might turn positive for tech spending.

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The Indian government hiked import duties on gold from 1 July: our industry contacts suggest that demand for bullion has subsequently been muted. The local market discount widened to US$20-21/oz during the first two weeks of the month.

Conversations with industry contacts reveal that retail demand remained tepid in July due to muted rural demand, the wedding season drawing to a close and the higher import duty on gold. Even with the 4% correction in the local gold price during the month, retail demand remained quiet. In this environment, official imports are expected to remain soft in July too.

Indian gold ETFs witnessed modest net inflows during the month (0.2t), primarily driven by the macroeconomic backdrop of higher inflation and a depreciating rupee. The minor increase lifted total gold ETF holdings to 39.1t by the end of June (Chart 4). Investors withdrew 0.6t from gold ETFs in the first two weeks of July, primarily due to profit booking amid a sharp correction in the gold price.

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President and CEO Eli Glickman explained that an expected muted demand for the rest of the year and continued challenging conditions for the container shipping market were to blame for the adjustments.

The enforcement of the Model Code of Conduct for the General Elections and its impact on infrastructure and construction activities are likely to result in a muted demand scenario for the domestic commercial vehicles (CV) industry in the early months of FY2025, some recovery in demand is anticipated in the latter months of the fiscal as macroeconomic activities are restored. Domestic CV wholesale volumes saw a moderate increase of 14 per cent on a YoY basis in April 2024, although declining 27 per cent sequentially due to the pause in infrastructure activities with the enforcement of the Model Code of Conduct. With a high base effect likely to influence the volume growth momentum, ICRA expects the domestic CV industry's recovery in FY2025, with a marginal decline of 4-7 per cent in wholesale volumes for the fiscal.

More than half of the freight movement across the country is via road, thereby making commercial vehicles a vital pillar for freight movement. This segment is used not only for freight, but also for passenger transportation.

Commercial vehicles in India are segmented by the gross vehicle weight. Primarily, the two categories are light commercial vehicles and medium and heavy commercial vehicles. Light commercial vehicles or LCVs have a weight ranging between 3.5 to 7 tons. All mini trucks, pickup trucks, and minivans within the weight mentioned above range fall under the LCV category. Medium and heavy commercial vehicles is the widest and the heavy range segment of the commercial vehicles sector. MHCV range covers both medium GVW range from 19 tonnes to 28 tonnes and heavy GVW range from 28 tonnes to 55 tonnes.

In the medium and heavy commercial vehicle (M&HCV) segment, retail sales volumes in April 2024 witnessed a marginal growth of 6 per cent on a sequential basis, while reporting a nominal 1 per cent YoY increase. M&HCV volumes in FY2025 are expected to marginally contract by 4-7 per cent YoY, given the high base effect and the impact of the polls on infrastructure activities in the first few months of the year, the report added.

In the light commercial vehicle (LCV) segment, retail sales volumes declined by 5 per cent on a sequential basis (8 per cent YoY growth) in April 2024 as seasonal demand for LCV passenger carriers from educational institutes typically support volumes in the fourth quarter, leading to a high base effect for the sequential trend. Domestic LCV wholesale volumes are likely to decline by 5-8 per cent in FY2025 due to factors such as high base effect, a sustained slowdown in e-commerce and cannibalisation from electric three-wheelers (e3Ws).

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