LONDON – Several shipping companies and a few liquefied natural gas (LNG) tankers have decided to avoid the world’s main East-West trade route, following attacks launched by Yemen’s Houthi group on commercial ships at the southern end of the Red Sea.

The attacks raised the specter of another bout of disruption to international commerce following the upheaval of the COVID pandemic, and prompted a U.S.-led international force to patrol waters near Yemen.

IS THE RED SEA ROUTE IMPORTANT FOR THE LNG MARKET?

The attacks have made reaching the Suez Canal more perilous.

About 12% of world shipping traffic transits the canal and 4-8% of global LNG cargoes have passed through it in 2023.

This year, a total of 16.2 million metric tons (MMt), or 51% of LNG trade, has flowed from the Atlantic Basin east through the Suez Canal, while 15.7 MMt went through the canal from the Pacific Basin west, according to S&P Global Commodity Insights.

WHO ARE THE MAIN SHIPPERS THROUGH THE ROUTE?

Qatar, the United States and Russia are the most active shippers via Suez. S&P estimates Qatari cargoes through the canal at 14.8 MMt, U.S. cargoes at 8.8 MMt and Russian ones at 3.7 MMt.

Qatar tops active shippers of cargoes heading from the East to Europe, but it provides only around 5% of net EU and UK imports.

“In reality, Qatar is the only exporter in an east-to-west direction via the Suez Canal. You can count the number of cargoes from Oman and the UAE to Europe this year on one hand,” said Robert Songer, LNG analyst at date intelligence firm ICIS.

An alternative route to Europe through the Cape of Good Hope could increase Qatari voyage days by 145%, or an extra 22 days on a round-trip basis.

For LNG to Asia, Qatar comes on top followed by the United States which has been using the Suez Canal recently as an alternative to the Panama Canal.

ICIS’ Songer said that U.S. Cheniere Energy has four tankers that were designed to avoid the Panama Canal due to being too big and hence sometimes go via Suez.

ARE PRICES IMPACTED?

Asian spot prices are currently at $12.3 per million British thermal units (mmBtu) and have remained around this range since the start of the attacks.

High inventories in Europe and North Asia are capping demand and expected to curb spot price growth in H1-2024.

HOW MARKET PLAYERS SEE THE RISK?

Market players believe LNG trade is likely to be largely unaffected and any disruption would not have a massive impact on global supply.

European gas prices saw a short-lived rebound on Monday on concerns over supply disruption from Qatar but had fallen back by Tuesday.

The majority believe that U.S. shipments, if they head to China/Asia, could only see short-term delay if cargoes reroute.

“The physical risks to Suez LNG transit are more weighted towards keeping Atlantic supply pointed at Europe than stopping Qatari supply from reaching Europe,” said Jake Horslen, senior LNG analyst at Energy Aspects.

The chairman of the Japan Gas Association (JGA), Takahiro Honjo, told a news conference that while there are risks, “I don’t think a supply crunch will suddenly occur anytime soon”.

Honjo, also the chairman of Osaka Gas Co., said that given the Panama Canal congestion, LNG companies have a few options including swapping supply between Europe and Asia. — Reuters

WASHINGTON – The Biden administration said on Tuesday it was taking the first step toward writing key standards and guidance for the safe deployment of generative artificial intelligence and how to test and safeguard systems.

The Commerce Department’s National Institute of Standards and Technology (NIST) said it was seeking public input by Feb. 2 for conducting key testing crucial to ensuring the safety of AI systems.

Commerce Secretary Gina Raimondo said the effort was prompted by President Joe Biden’s October executive order on AI and aimed at developing “industry standards around AI safety, security, and trust that will enable America to continue leading the world in the responsible development and use of this rapidly evolving technology.”

The agency is developing guidelines for evaluating AI, facilitating development of standards and provide testing environments for evaluating AI systems. The request seeks input from AI companies and the public on generative AI risk management and reducing risks of AI-generated misinformation.

Generative AI – which can create text, photos and videos in response to open-ended prompts – in recent months has spurred excitement as well as fears it could make some jobs obsolete, upend elections and potentially overpower humans and catastrophic effects.

Biden’s order directed agencies to set standards for that testing and address related chemical, biological, radiological, nuclear, and cybersecurity risks.

NIST is working on setting guidelines for testing, including where so-called “red-teaming” would be most beneficial for AI risk assessment and management and setting best practices for doing so.

External red-teaming has been used for years in cybersecurity to identify new risks, with the term referring to U.S. Cold War simulations where the enemy was termed the “red team.”

In August, the first-ever U.S. public assessment “red-teaming” event was held during a major cybersecurity conference and organized by AI Village, SeedAI, Humane Intelligence.

Thousands of participants tried to see if they “could make the systems produce undesirable outputs or otherwise fail, with the goal of better understanding the risks that these systems present,” the White House said.

The event “demonstrated how external red-teaming can be an effective tool to identify novel AI risks,” it added. — Reuters

Starbucks CEO Laxman Narasimhan said on Tuesday people protesting against the company over its stance on the Israel-Hamas war have been “influenced by misrepresentation on social media” of what the coffee chain stands for.

Narasimhan, in a letter to employees, noted many of Starbucks’ stores have experienced incidents of vandalism, and added the company has worked with local authorities to ensure the safety of its workers and customers.

The coffee chain is among several Western brands that have come under pressure from consumers calling for companies to take a stance in the Israel-Hamas war, with some even facing boycott campaigns in some Arab countries.

Seattle-based Starbucks also sued the Workers United union in October, which represents thousands of baristas at about 360 U.S. stores, after the union briefly posted a statement on social media that the company said “reflected” the union’s “support for violence perpetrated by Hamas”.

The company at the time said it “unequivocally condemns acts of terrorism, hate and violence”, adding it strongly disagreed with the views expressed by the union. — Reuters

BEIJING – A shift in Chinese retailers’ strategy toward lower-priced goods and services to win cost-conscious consumers risks embedding the country’s recent deflationary trends more permanently into the world’s second-largest economy.

Price cuts, the proliferation of bargain stores and companies offering cheaper, scaled-down versions of their products may create a vicious cycle of lower profit margins that curtail wage and job growth and further depress consumer appetite. This stands to create more headwinds for China’s stuttering post-COVID recovery.

The fierce competition to draw the attention of thrifty Chinese consumers is reshaping the country’s retail landscape and the deflation concerns are drawing further comparisons with Japan’s “lost decades” of stagnation.

Falling income growth is normalizing lower consumption in China, with some industries experiencing declining revenue, as “companies are lowering prices to maintain their market share and avoid being squeezed out,” said Wang Dan, a Shanghai-based economist at Hang Seng Bank.

“It is definitely a price decrease or low inflation environment now. Though it is hard to forecast how long the situation will last, but for sure it is bad for the economy,” she said.

Numerous examples of Chinese retailers offering lower-priced alternatives have appeared in response to consumer’s cost-cutting.

Haidilao, China’s largest hotpot restaurant chain known for premium, attentive service, in late September opened two outlets of a lower-priced brand, Hailao Huoguo, that offers beef dishes for as low as 28 yuan ($3.92), down from 70 yuan at the flagship chain. Huoguo’s food is also served cafeteria-style, reducing staffing costs.

Spirits maker Moutai, whose trademark 500ml baijiu bottles sell at 1,499 yuan ($209.89), this year unveiled latte and chocolate products infused with the liquor that sell for as little as 35 yuan.

Walmart’s membership chain Sam’s Club and Alibaba’s Freshippo have been locked in a price war for the past five months with both sides cutting prices on popular items such as durian puff pastries by up to 34% at Sam’s.

The pursuit of “value of money” among consumers “is reversing years of trading up across almost every category,” said Mark Tanner, founder of Shanghai-based marketing agency China Skinny.

Discounting and the roll-out of cheaper products had led to a fall in the average selling price for several product categories, including supplements, dairy, skin care and cosmetics, he added.

Policymakers have said they expect inflation to pick up, but data earlier this month showed consumer prices falling at their fastest pace in three years and factory gate deflation deepening.

While the economy, spurred by state-directed credit and investment, is expected to expand 5% or so this year, consumers are not feeling that growth, with youth unemployment running high and some office workers earning lower wages.

Andy Yang, a student in Beijing, recently went to Hailao Huoguo with friends and planned to switch from Haidilao in the long run. “I’m graduating next year but I still don’t have any good job offers. For me, the cheaper the better,” he said.

Reached for comment, Haidilao said the brand was “still an experiment”.

BARGAIN STORE EXPANSION

The climate has also given rise to a new breed of discount stores, a relatively new phenomenon for China, whose emergence are also spurring larger rivals to announce big price cuts.

Lingshi Henmang is a six-year-old snack brand with the slogan “The People’s Snack”. Its products are cheaper than supermarkets and it plans to expand to 10,000 stores in 2025 from 4,000 currently, according to the Changsha-based company.

In a statement released by its public relations representative, Lingshi Henmang said the expansion was a result of strong demand.

“The market has undergone significant changes in the past three years due to the epidemic, and consumers are becoming more rational in their purchasing decisions,” the statement said.

Bestore, China’s biggest snack brand, in November fought back by cutting prices on average by 22% on 300 products, with the largest at 45%, in its biggest reductions ever.

Hotmaxx, which specializes in selling soon-to-expire products at cheaper prices, has also set a target of expanding to 5,000 outlets in the next three years, from 250 currently, according to its website. — Reuters

BRUSSELS – Nearly all European Union countries and around 300 companies and industry groups agreed on Tuesday to move ahead with plans to rapidly expand wind farms and the local industries needed to build them.

The European Commission announced plans in October to support Europe’s wind energy industry, which will need to massively expand capacity to hit the EU’s target to get 42.5% of all energy from renewable sources by 2030 – nearly double today’s share.

All of the EU’s 27 member countries except for Hungary said on Tuesday they would carry out EU recommendations including changing renewable energy auctions in ways that could give local manufacturers an edge – by requiring developers to compete not only based on price, but also on cybersecurity and labour standards.

A spokesperson for Hungary’s EU representation declined to say why the country did not join, but cited an “ongoing national legislative procedure” without specifying further.

The governments agreed to also step up investments in local manufacturing capacity for wind turbines and other parts.

Ingrid Reumert, a senior vice president at Orsted , the world’s largest offshore wind developer, welcomed the governments’ pledge to “walk the talk”.

“The real roadblocks to building 30 GW of wind every single year up until 2030, which is what we need to do to reach our climate targets, will be dealt with by individual EU countries,” she said.

Europe’s main turbine makers all posted operating losses last year. The sector has warned that it is struggling to grow fast enough to meet green power targets, as firms face high interest rates and rising supply chain costs.

The countries also agreed to scrutinise potentially unfair trade practices in foreign wind product manufacturing, as local firms face increased competition from China. — Reuters