Wednesday, October 10, 2018

Shipping/Natural Gas: "China Blinks First In LNG Face-Off With U.S."

We will be back with equities in a few hours but for now natural gas.
As we've mentioned over the past few months the LNG carriers are one of the few shipping lines that can get away with naming their own price. No idea how long it lasts, ships are under construction right now,* but for the moment they are making money,
Amid the ongoing trade war between the U.S. and China, it seems that Beijing may be getting the short end of the stick already. On Sunday, the People’s Bank of China said it was cutting the reserve requirement ratio for most banks by 100 basis points, which will result in an injection of 750 billion yuan ($109.2 billion) in cash into China’s banking system. The move is intended to provide easier lending and more liquidity in China's economy as the impact of U.S. sanctions start to hit manufacturing and the overall economy.

Not business as usual
Several analysts are claiming that the ratio move shows China is getting nervous about a protracted trade war with the U.S. However, if China is getting the jitters, the official tone coming out of Beijing is more stiff lipped defiance. The government claims in a 71-page paper that it’s not afraid of a trade war and that its economy is “heavily resilient.”

Fraser Howie, an independent analyst and China watcher told CNBC on Monday that "China is probably facing its worst period since the global financial crisis.”
“All news is against it,” he said. "They certainly want to play down any talks of panic or near panic ... but they're clear it's not business as usual in China.”

Bloomberg News said in a report that the Bank of China move was understandable as a short-term response to a more challenging growth environment, but it risks being another attempt to crank up an old economic- model whose effectiveness has declined and whose unfavorable side effects could increase. The bank move also could be a preemptive step to avoid massive outflows of investor money from its financial system if the trade war continues.

Blinking (twice)
On the energy front, China has already blinked, maybe even twice. First, it conceded in August by removing U.S. oil imports from a list of possible duties. Two months earlier, China - perhaps trying to either intimate U.S. oil producers (who have been largely supportive of Trump’s policies thus far) who would in turn pressure President Trump, or either by pressuring Trump directly, indicated it would levy a 25 percent duty on U.S. oil imports....MORE
*See for example Teekay who just took delivery of their second ice-breaking LNG carrier, the Rudolf Samoylovich which joins their Eduard Toll.
Mitsui Osk Lines (MOL) just took delivery of a similar ARC 7 class making seven or eight of these ships capable of breaking 1.8 metre ice hauling Yamal gas. There are two more on the way.

Here's last February's "Arctic Doings: "Teekay’s New Icebreaking LNG Carrier ‘Eduard Toll’ Makes Historic Northern Sea Route Passage".