China's demand for liquefied natural gas (LNG) is expected to increase by 9-14% in 2023 compared to 2022. - according to forecasts provided by analysts Rystad Energy, Wood Mackenzie and ICIS. However, imports to China are expected to remain below 2021 record levels due to the ongoing impact of the pandemic. According to a report by Goldman Sachs Research, the opening of China after the COVID-19 coronavirus restrictions will not only accelerate the country's economic recovery, but also boost global growth. Due to the faster-than-expected pace of this opening, Goldman Sachs analysts forecast that Chinese GDP will grow by 6.5% year-on-year in 2023. Which markets could be affected?
Goldman Sachs predicts a 24% increase in the value of Chinese stocks.
Goldman Sachs Group (GS) predicts that the sell-off in the Chinese stock market since the end of January will reverse as China's economic recovery brings strong corporate earnings. The US investment bank predicts that the MSCI China Index (MCHI) could rise by around 24% by the end of 2023 from last week's close. Goldman Sachs' optimistic forecast comes at a time when investors are wondering whether the ongoing rally in Chinese equities driven by economic recovery since November last year is over. Escalating geopolitical tensions and an uncertain outlook for economic recovery caused losses in February after a three-month surge, but China supporters say a key policy meeting scheduled for next month, as well as upcoming financial results, could bring fresh momentum.
Source: Conotoxia MT5, MCHI, Daily
As we have seen from the Goldman Sachs report, China's re-opening and a rise in domestic demand could lift global GDP by 1% by the end of 2023. This growth could come from three channels:
- growth in domestic demand,
- an increase in international travel,
- increased demand for raw materials, including oil.
China number one as an importer of liquefied gas
China is now making efforts to sign new long-term contracts for the supply of liquefied natural gas (LNG), giving it even greater control over the global market at a time when competition for such supplies is increasing. Chinese companies now sign the most LNG purchase contracts of any country and are increasingly becoming key intermediaries in LNG imports. Chinese buyers are reselling many cargoes at inflated prices in Europe and Asia, resulting in their control over a significant portion of the supply of this crude.
Source: BloombergNEF
An analysis of BloombergNEF data shows that companies based in China account for about 15% of all LNG supply contracts until 2027. This trend could increase as Chinese companies seek to sign more long-term contracts. China could become one of the world's largest LNG importers almost overnight, thanks to Beijing's efforts to ensure energy security. However, as analysts point out, the Middle Kingdom's position in the market may have two sides of the coin: China could provide stability during periods of global shortages, but it could also lock in supplies and raise prices if it needs to meet domestic needs. "If not for the lower Chinese LNG demand in 2022, the global gas market — and Europe’s energy security — would be in a far more perilous state" - conveyed Shell in its annual forecast report on the fuel. Saul Kavonic, energy analyst at Credit Suisse Group AG, added: "If not for the lower Chinese LNG demand in 2022, the global gas market — and Europe’s energy security — would be in a far more perilous state."
It seems that we are now seeing an awakening of the Chinese economy, which may be hungry for gas demand. Therefore, we may now see demand and supply aligning in the price of this commodity, which, if demand from China increases further, could provide an opportunity to reverse its downward trend.
Source: Conotoxia MT5, XNGUSD, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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