Global heat warning sounds again! At the same time, the global economy has also been "scorched" by this heat wave. According to the latest data released by the U.S. National Centers for Environmental Information, in the first four months of 2024, global temperatures hit a new high for the same period in 175 years. Bloomberg recently reported in a report that many industries are experiencing challenges caused by climate change - from the shipping industry to energy and electricity, to the transaction prices of bulk agricultural products, global warming has caused "difficulties" in industry development.
Energy and power market: Vietnam and India are the "hardest hit areas"
Gary Cunningham, market research director of the "Traditional Energy" research company, recently warned the media that hot weather will lead to a surge in the use of air conditioners, and high electricity demand will increase the use of natural gas and other energy sources, which may lead to a decline in natural gas use in the United States. Futures prices soared rapidly in the second half of the year. Previously in April, Citigroup analysts predicted that a "storm" caused by high temperatures, hurricane-induced disruptions in U.S. exports, and increasingly severe droughts in Latin America could cause natural gas prices to surge by about 50% from current levels. to 60%.
Europe is also facing a serious situation. European natural gas has been on a bullish trend before. There are recent reports that hot weather will force some countries to shut down nuclear power plants, because many reactors rely on rivers for cooling, and if they continue to operate, it will have a huge impact on river ecology.
South Asia and Southeast Asia will become the "hardest hit areas" for energy shortages. According to the "Times of India" report, according to data from India's National Load Dispatch Center, high temperatures have led to a surge in power demand, and Delhi's single-day power consumption has exceeded the 8,300 megawatt threshold for the first time, setting a new high of 8,302 megawatts. Singapore’s Lianhe Zaobao reported that the Indian government warned that local residents are facing water shortages. According to reports, heat waves in India will last longer, be more frequent and be more intense this year.
Southeast Asia has suffered from severe high temperatures since April. This extreme weather condition quickly triggered a chain reaction in the market. Many traders have begun to stockpile natural gas to cope with the surge in energy demand that may be caused by high temperatures. According to the "Nihon Keizai Shimbun" website, Hanoi, the capital of Vietnam, is expected to be hotter this summer, and power demand in the city and other places has also surged.
Agri-food commodities: the threat of “La Niña”
For agricultural and grain crops, the return of the "La Niña phenomenon" in the second half of the year will put greater pressure on global agricultural products markets and transactions. The "La Niña phenomenon" will strengthen regional climate characteristics, making dry areas drier and humid areas wetter. Taking soybeans as an example, some analysts have reviewed the years when the "La Niña phenomenon" occurred in history, and there is a high probability that South American soybean production will decline year-on-year. Since South America is one of the world's major soybean-producing regions, any reduction in production could tighten global soybean supplies, pushing up prices.
Another crop affected by climate is wheat. According to Bloomberg, the current wheat futures price has reached its highest point since July 2023. The causes include drought in Russia, the main exporter, rainy weather in Western Europe, and extreme drought in Kansas, the main wheat growing area in the United States.
Li Guoxiang, a researcher at the Institute of Rural Development of the Chinese Academy of Social Sciences, told the Global Times reporter that extreme weather may cause short-term supply shortages for agricultural products in local areas, and uncertainty about the corn harvest will also increase, “because corn is generally wheat. If you plant after planting, there will be a greater chance of production loss due to the extreme weather in the second half of the year.”
Extreme weather events have also become one of the driving factors for higher cocoa and coffee prices. Analysts at Citigroup predict that futures for Arabica coffee, one of the important varieties in commercial coffee, will rise in the coming months if bad weather and production problems in Brazil and Vietnam persist and fund managers in the block trade start snapping up Prices could rise about 30% to $2.60 per pound.
Shipping industry: Restricted transportation creates a “vicious cycle” of energy shortages
Global shipping is also inevitably affected by drought. 90% of current global trade is completed by sea. Extreme weather disasters caused by ocean warming will cause serious losses to shipping lines and ports. In addition, dry weather can also affect critical waterways such as the Panama Canal. There are reports that the Rhine River, Europe's busiest commercial waterway, is also facing the challenge of record low water levels. This poses a threat to the need to transport important cargo such as diesel and coal inland from the Port of Rotterdam in the Netherlands.
Previously, the water level of the Panama Canal dropped due to drought, the draft of freighters was restricted, and the shipping capacity was reduced, which damaged the trade of agricultural products and the transportation of energy and other bulk commodities between the northern and southern hemispheres. Although rainfall has increased in recent days and shipping conditions have improved, the previous severe constraints on shipping capacity have triggered people's "association" and concern about whether inland canals will be similarly affected. In this regard, Xu Kai, a senior engineer at Shanghai Maritime University and chief information officer of the Shanghai International Shipping Research Center, told the Global Times reporter on the 2nd that taking the Rhine River in the hinterland of Europe as an example, the load and draft of ships on the river are small, even if there is a drought that affects traffic. This situation will only interfere with the transshipment ratio of some German hub ports, and a capacity crisis is unlikely to occur.
Still, the threat of severe weather is likely to keep commodity traders on high alert in the coming months, senior energy analyst Carl Neal said, as "uncertainty creates volatility, and for bulk trading markets, "People tend to price in this uncertainty." In addition, the restrictions on tanker transportation and liquefied natural gas transportation caused by the drought will further exacerbate supply chain tensions.
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Post time: Jun-03-2024