EU members eventually agreed to a ban on Russian oil. However, the deal has been significantly watered down from the original proposal. Instead of targeting all imports of Russian crude oil, the EU will ban imports of Russian maritime crude oil for the next 6 months. This would make it possible to ensure the supply of the landlocked countries of the CEECs, which are very dependent on the supply by Russian gas pipeline. In theory, this should mean that around two-thirds of the roughly 2.3 million barrels/d of imported Russian oil will be affected. However, in practice, we expect volumes to decline further. The main recipients of oil from the Druzhba pipeline are Germany and Poland, and both countries have previously said they aim to reduce Russian imports to zero. Thus, the ban could target closer to 90% of Russian flows to the EU. This is unlikely to be the final deal, as the EU will work to reduce the dependence of Hungary and other central and eastern European countries on Russian oil in the longer term. Full details of the deal have yet to be released. This decision supports prices. However, the market has had a month to digest the potential ban, so we believe it is already largely priced in. This is reflected in the early trading price action in Asia this morning.
There were also new developments in the European natural gas market yesterday. Gazprom is set to halt gas flows to the Netherlands from today after GasTerra refused to accept new payment terms from Russia. The amount of affected gas supply will be around 2 billion cubic meters by October, when the supply contract was due to expire anyway. The Netherlands should be able to make up for these lost flows, given the strong LNG imports we have experienced this year. In addition, we are also seeing greater gas flows from the UK via the BBL pipeline. The Netherlands is the fourth country after Poland, Bulgaria and Finland to see the flow of Russian gas stopped. On an annual basis, these countries import about 20 billion cubic meters of Russian gas, or about 13% of total Russian gas flows to the EU. This is likely to increase in the coming days, and it looks like Denmark will also see flows halted, with Danish company Orsted also refusing the new payment terms. Orsted has a long-term contract with Gazprom for 2 billion cubic meters per year.
Shanghai’s reopening plan and relatively favorable dollar conditions spurred a rally in the industrial metals sphere. Beijing has unveiled new guidelines to drive high-quality clean energy growth in the new era. The country has pledged to accelerate the construction of major wind and solar farm projects while reiterating the target of having 1.2 billion kilowatts of such capacity by 2030. The latest guidelines were drawn up by the Commission Development and Reform (NDRC) and the National Energy Administration (NEA) and have been issued by the General Office of the State Council. The support from the authorities should increase the chances that the renewable energy sector will continue to see strong growth and support the demand for metals such as copper and aluminum.
Nickel continued its strength from last Friday and broke above US$30,000/t on Monday in a very thin market. The 3M contract hit an intraday high of US$30,610/t, the highest since May 5. Speculation has grown that Indonesia may impose tariffs on nickel exports with a nickel content of less than 70%, which was mentioned by an official last week at a conference. However, there has been no confirmation on the fare details and timing. According to MySteel, the Chinese market continues to see drawdowns in aluminum ingot and billet inventory. Total bullion stock fell to 954kt on Monday (-14kt from May 26), while billets fell to 152.5kt. Meanwhile, the LME’s total aluminum inventories fell to more than two decades, at 467 kt.