China imports more LNG but not enough to drive spot prices

(Reuters) - China's imports of liquefied natural gas rose to a five-month high in June but tepid demand in the rest of the top-importing continent has kept a lid on spot prices.

China, the world's second-biggest LNG buyer, is estimated to have imported 5.96 million metric tons of the super-chilled fuel in June, according to data compiled by Refinitiv.

This is the most since January and up from 5.54 million metric tons in May, as well being 28% higher than the 4.64 million offloaded in June last year.

The decline in the spot price for cargoes delivered to north Asia to two-year lows in early June appears to have sparked some buying interest among Chinese utilities.

The spot price slipped to $9.00 per million British thermal units (mmBtu) in the week to June 1, the lowest since April 2021 and down 87% from its record high of $70.50 in late August as prices soared on supply fears and European-led demand in the wake of Russia's invasion of Ukraine.

The high spot prices had deterred Chinese buyers, who instead were just taking volumes bought under longer-term contracts, which are most typically priced against a crude oil benchmark such as Brent .

It is believed that spot cargoes are viable for Chinese utilities only if the price drops below $10 per mmBtu, given the natural gas has to compete with domestic and pipeline supplies in a market that has some regulated prices.

But since hitting the $9.00 per mmBtu low, the spot price has climbed somewhat, reaching $13.50 in mid-June, before moderating to $12.12 in the week to June 30.

The Asian price was most likely responding to moves in key European natural gas prices, rather than any dynamic based on the region's own demand.

Even this relatively modest increase in the price may be enough to limit China's appetite for spot cargoes in July and August, although this may have to be balanced against the possibility of higher demand to meet peak summer power consumption.

Asia, Europe demand

Outside of China, Asia's demand was more mixed, with overall June imports rising to 20.90 million metric tons, up from 20.18 million in May and the most since March, according to Refinitiv.

Japan, which reclaimed the title of top LNG importer last year from China, saw arrivals of 4.93 million metric tons in June, up from 4.16 million in May, although it's worth noting that May was the weakest month in Refinitiv records stretching back to January 2013.

Japan's June imports were still 17.4% below the 5.97 million metric tons from June 2022.

South Korea, the third biggest importer, saw arrivals of 3.08 million metric tons in June, largely steady from 3.17 million in May, but up from 2.73 million in June last year.

India, which tends to be a price-sensitive buyer of LNG, imported 1.59 million metric tons in June, down from the 2.06 million in May, which was the strongest month since October 2021.

While Asia's overall LNG imports are showing a relatively steady picture, Europe's have been trending lower amid ample stockpiles of natural gas.

Europe imported 9.50 million metric tons in June, the lowest monthly total since August and down from 12.11 million in May, according to Refinitiv.

The weaker demand for LNG in Europe has been enough to offset some increase in Asia and force swing suppliers such as the United States, to sell more cargoes in Asian markets.

Asia's imports of U.S. LNG rose to 1.34 million metric tons in June, the most since February and up from 1.21 million in May.

In contrast, Europe's imports of U.S. LNG dropped to 4.15 million metric tons in June, the least since September and down from 5.63 million tons in May.

Overall, the LNG market appears to be finely balanced between signs of some stronger demand in Asia being moderated by Europe's weaker imports.

The opinions expressed here are those of the author, a columnist for Reuters.

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