Tracking trade: supply pressures ease, global LNG trade shifts west

Supply chain pressures continued to ease in July and August. Meanwhile, the war in Ukraine has accelerated a huge shift in global gas markets.

15 Sep 2022 . 3 minutes

Global trade improved slightly in Q2, while shortening supplier delivery times and dwindling backlogs suggest supply chain pressures continued to ease in July and August. A rise in shipping capacity has in turn reduced shipping costs in recent months. Our Regional Supply Chain Index (RSCI) shows some easing of supply pressures in the UK, US, Euro Area, and China. But pressures appear to be building in Japan.

World trade volumes broadly remain unchanged at a high level in June. But a quarterly comparison shows that global trade volumes grew 0.8% in Q2 2022, after expanding 0.6% in Q1.

Trade in Eastern Europe continues to be weighed down by the war in Ukraine

As the chart below shows, quarterly trade growth was strongest in emerging Asia (excluding-China), followed by Latin America, and Africa/Middle East. The slowdown in Q2 was concentrated in Eastern Europe and CIS countries, due mainly to the war in Ukraine.

Quarterly trade growth by region: Q2 2022

Sources: CPB Netherlands, NatWest Markets. Note: pre-Covid = December 2019, last month: March 2022

Forward-looking indicators suggest supply chain pressures continue to ease for most

Recent trade data suggests constraints in supply chains continued to ease in July and August. Suppliers’ delivery delays across major economies fell to the lowest levels seen since late 2020s.

As we suggested might come to pass in our previous note, weaker consumer demand is weighing on new orders. This has allowed producers to reduce their backlogs, and has freed up global shipping capacity, easing transport and logistics bottlenecks and further reducing costs (see chart below).

Delivery costs are dropping across all major trade routes

Sources: Freightos Baltic Containerised, NatWest Markets. Note: Junary-2020 prices = 100

As a result, regional supply chain pressures are easing almost everywhere. In Japan, supply chain pressures appear to be on the rise. However, we believe this is mostly due to the lagged impact of lockdowns in China, which have disrupted manufacturing supply chains across North Asia.

The NatWest Markets Regional Supply Chain Index shows supply pressures dropped almost everywhere in July

Sources: National sources, NatWest Markets. Note: Numbers indicate standard deviations away from the mean; Green shows improvement, while red means intensification of pressures.

Amidst an energy crisis, global LNG trade has reversed directions

Global trade tends to ebb and flow on a seasonal basis; rarely do we see large (or relatively abrupt) structural shifts in the direction of trade for certain goods and services.

But energy markets, and specifically gas, appears to be an exception. A global energy crisis first initiated by the post-pandemic economy surge and fuelled by the war in Ukraine is having a huge impact on global gas markets. In fact, a closer look at the export and import of liquified natural gas (LNG) globally suggests a big shift in the regional direction of trade.

While LNG producers from the Gulf region have served the importing markets for years, the recent emergence of US as the world’s top LNG exporter is set to change the stage. European LNG demand is likely to remain strong due to uncertainties about natural gas supplies (via pipelines) from Russia.

Top LNG exporters as of August 2022 (% share of total gas exports)

Sources: NatWest Markets, Bloomberg

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