The Commodities Feed: Further Spec Liquidation

Commodity

Summary:

Given the moves seen in the oil market in recent weeks, it was no surprise that speculators aggressively cut their net long in the oil market.

Energy - Speculators cut further longs

Despite the weakness in the oil market towards the end of last week, ICE Brent still managed to settle almost 2.8% higher WoW and more importantly, hold above US$70/bbl in the recent sell-off. Price action in early morning trading today is looking more positive with both Brent and WTI trading stronger.

It shouldn't come as too much of a surprise that positioning data shows that speculators once again cut their net long in ICE Brent significantly. The managed money net long fell by 63,459 lots over the last reporting week to 169,925 lots as of last Tuesday. This reduction was driven largely by longs liquidating (42,880 lots), but there was also a fair amount of fresh shorts added (20,579 lots). The latest data show that most of the gross longs that we saw added over January and February have now been closed out. Given the more neutral spec positioning, this leaves speculators with quite a bit of room to push the market higher. Although, obviously for that, we will need to see a change in sentiment and an easing in concern over recent developments in the banking sector.

There are reports that Nigeria is finding it difficult to find buyers for its April loadings of crude oil. Bloomberg reports that somewhere between 20-25 shipments are still unsold for the month. This comes at a time when strike action in France (which is a relatively large buyer of Nigerian crude) has led to refiners reducing runs, which obviously weighs on crude oil demand. In addition, some seasonal maintenance is ongoing at several European refiners, which will not be helping matters.

EU energy ministers are set to meet this Tuesday to discuss a number of topics, including natural gas demand reductions. The 15% voluntary demand reduction agreed upon last year, is set to expire at the end of March. The current proposal sees the 15% voluntary demand cut extended through until March 2024. Our balance suggests that from April 2023 through to March 2024, the EU will only need to see around a 10% demand cut to ensure a comfortable supply/demand picture for the region.

Metals – LME aluminium on-warrant stocks decline

LME on-warrant aluminium stockpiles fell by 4,825 tonnes for a fifth consecutive day to 426,975 tonnes on Friday, the biggest fall since 10 March. Most of the outflows were reported from warehouses in Asia. Net outflows for the week totalled 10,925 tonnes as of last week compared to the inflows of 10,825 tonnes a week earlier. Meanwhile, exchange inventories declined for the fifth straight session, falling by 6,625 tonnes to 532,725 tonnes at the end of last week.

Data from the Shanghai Futures Exchange (ShFE) shows that weekly exchange inventories for aluminium declined by 18,170 tonnes to 293,291 tonnes as of Friday. This was the first weekly decline in stocks since December. Among other metals, copper stocks fell 11.6% WoW to 161,152 tonnes, whilst lead inventories fell 25% WoW to 37,537 tonnes.

The latest reports suggest that operations at the Las Bambas copper mine in Peru are back to normal, as MMG Ltd. confirmed over the weekend that 'the mining processing and transport of concentrate is back to full capacity' following the end of roadblocks by community protestors.

Chinese refined nickel net imports have slumped to near a record low after domestic producers ramped up production levels. Data from Chinese Customs shows that net imports of refined nickel fell 85% MoM (lowest since October 2019) in February. The latest forecast from Mysteel shows that domestic refined nickel output may rise 39% YoY to 245.9kt in 2023 as smelters process Indonesian intermediate products and recycled material.

The LME will resume Asian trading hours for its nickel contract from today. The LME will be hoping that this leads to a boost in volumes and helps to improve liquidity. Asian trading hours for the LME nickel contract were suspended last year following the significant short squeeze seen in the market in March last year.

Agriculture– Ivory Coast cocoa shipments slow

The latest reports from the International Cocoa Organization (ICO) show that cocoa exports from the top producer, Ivory Coast, stood at 540kt between October 2022 to January 2023, down 9.3% YoY. Total arrivals of beans at ports in the Ivory Coast for the season (as of 19th March) were 1.75mt, down from 1.82mt from the same period last year.

The latest CFTC data shows that money managers reduced their net bearish bets in CBOT wheat by 8,757 lots over the last week to 86,500 lots as of 21 March. The move was predominantly driven by short covering. Similarly, the speculative net short in CBOT corn decreased by 12,238 lots to 41,896 lots, while for soybeans, speculators reduced their net longs by 16,875 lots, leaving them with a net long position of 110,786 lots.

Source: ING

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Samantha Luan

Economic

Asia's economic data and policy calendar this week is light, which is perhaps just as well because investors' focus is firmly fixed elsewhere - the global banking crisis and what it means for growth, markets, and policy.

Some may balk at recent events being termed a 'crisis', but consider: two of America's top 25 banks have collapsed; a global giant, Credit Suisse, has been swallowed up; worries over another, Deutsche Bank, are mounting; the Fed has taken emergency steps and provided backstops worth hundreds of billions of dollars.

Fears over deteriorating credit conditions are rising, despite the swift and bold action from U.S. and Swiss authorities. Fed and European Central Bank officials raised the warning flags on Sunday, echoing soundings from across the private sector last week.

This is the precarious backdrop to the final week of the quarter. The turmoil and volatility across interest rates and fixed-income markets since Silicon Valley Bank was shuttered by California regulators on March 10 has been severe.

Asia will not be immune. If safe-haven buying and rising demand for dollar liquidity and collateral pushes up the dollar, economies in the region will be under pressure.

Weakening domestic exchange rates push up price pressures, forcing central banks into a corner - tighten policy when growth is slowing, or allow inflation to rise? A stronger dollar also, all else equal, tightens financial conditions.

Currency market volatility has been surprisingly subdued since the banking crisis flared up. Maybe that is about to change.

Bank stocks have tumbled but stocks in general, and particularly the interest rate-sensitive tech sector, have held up better. More speculative corners of the investment universe, like Bitcoin and cryptocurrencies, have significantly outperformed.

The Nasdaq is up two weeks in a row, and still up 3% for the month, while Bitcoin is up 35% since SVB collapsed.

How much longer can they defy gravity? If bond yields and implied rates are plunging because a looming credit crunch makes recession far more likely, risk appetite is likely to change accordingly.

Perhaps the Fed and other central banks can achieve the holy grail of a soft landing, and take the seemingly contradictory policy steps of promoting financial stability and tackling inflation without any further ructions in the financial system.

Perhaps.

Trade figures from Hong Kong and Thailand are the main Asian data points on Monday. Later in the week Vietnamese GDP, a Thai interest rate decision, Japanese retail sales and unemployment are on the docket, while the preliminary PMIs for March across the continent - including China - start filtering in.

Here are three key developments that could provide more direction to markets on Monday:

- Germany Ifo index (March)

- ECB's Schnabel speaks

- BoE Governor Andrew Bailey peaks

Source: Yahoo

To stay updated on all economic events of today, please check out our Economic calendar

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FastBull Featured

Daily News

【Quick Facts】

1. The Fed may not cut interest rates easily.

2. Eurozone PMI data hides the uncertainty of economic outlook.

3. Russia is about to complete its commitment to cut oil production by 500,000 BPD.

4. Disagreement appears within the Fed.

5. Knot: support for continued rate hikes in May to fight inflation.

【News Details】

1. The Fed may not cut interest rates easily.

Combing the historical conditions for the Fed to cut interest rates, it was found that either the risk of recession and deflation rose significantly; otherwise, there is a major "black swan" in the financial markets, and may evolve into financial systemic risk. Learning from history, the Fed may not easily cut interest rates if a bigger financial risk event than the current one does not occur. This time the Fed may take "high interest rates + temporary expansion of the balance sheet" combination to deal with the dual challenge of inflation and financial risk. So why is the market so looking forward to a rate cut? One explanation is the hope that the "Fed put option" reproduced, so that the market to return to the stock and bond double bullish, and asset prices rose across the board "good old days".

2. Eurozone PMI data hides the uncertainty of economic outlook.

Eurozone PMI data for March confirmed the improving economic trend, but did not reflect the downside risks to the economic outlook from recent financial market volatility. The banking sector turmoil did not materially affect any of the component data of the PMI, even for some sentiment-influenced data such as expectations for future activity. This may reflect the timing of data collection, but it is more likely that firms remain uncertain about the potential impact of current tensions on their activities.

3. Russia is about to complete its commitment to cut oil production by 500,000 BPD.

Russian Deputy Prime Minister Alexander Novak said in a statement that the country is close to completing its pledged production cut, which is to cut output by 500,000 BPD from the actual output level of 10 million BPD. Novak said Russia is now close to completing this pledged cut and will achieve the target in the coming days.

4. Disagreement appears within the Fed.

St. Louis Fed President Bullard said he has raised the Fed's 2023 interest rate forecast to 5.625%.

Atlanta Fed President Bostic continues to emphasize that anti-inflation remains a top priority and further policy tightening may be needed.

And Minneapolis Fed President Kashkari seems to have softened his stance, saying that banking sector stress has increased the risk of recession and that it is too early to make any predictions for the next interest rate meeting. For now, the Fed interest rate swaps completely rule out the possibility of a 25 bps rate hike in May.

5. Knot: support for continued rate hikes in May to fight inflation.

Klass Knot, an executive member of the ECB and president of De Nederlandsche Bank (DNB), said the following in an interview on Thursday (local time):

Stresses that the real inflation problem lies in core inflation, which shows no sign of abating yet. Think the ECB's work is not over yet. The question to ponder is whether simply keeping interest rates at a mildly restrictive level is enough to bring about the "disinflation" the ECB wants to see.

Given that the risks to the inflation outlook are clearly tilted to the upside, without the Credit Suisse episode, I would have been very confident that the ECB would need to raise rates further in May. However, it is still believed that the ECB will need to raise rates again in May, and the magnitude is not certain at this point.

Market turmoil will likely still affect monetary policy if private sector financing costs remain high, but the impact would need to be "robust and permanent" to change the policy outlook.

If the turmoil does not intensify in the coming weeks, then the ECB can gradually stop reinvesting under the APP altogether, but only if it does not cause excessive turbulence in the eurozone bond markets.

【Focus of the Day】

UTC+8 16:30 ECB Governing Council member Nagel to speak

UTC+8 21:40 ECB Executive Committee member Elderson to speak

UTC+8 22:00 ECB Governing Council member Centeno to speak

UTC+8 23:00 ECB Executive Committee member Schnabel to speak

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Alex

Stocks

Investors are preparing for a long U.S. stock market slog, braced for more banking sector tumult and worries over how the Federal Reserve's tightening will impact the economy.

Financial stocks in the United States experienced sharp moves throughout the week after the collapse of two U.S. lenders and last weekend's Swiss-government-orchestrated takeover of troubled Credit Suisse by rival UBS.

"Volatility will continue because we still don't know the extent of the disruptions with in the banking sector," said Cameron Dawson, Chief Investment Officer at NewEdge Wealth.

Many worry that other nasty surprises lurk as the rapid series of interest rate hikes the Fed has delivered over the past year dry up cheap money and widen fissures in the economy.

"Investors are acting first and looking into the nuances later," said Wei Li, global chief investment strategist at fund giant BlackRock. "It's understandable because it's not super clear that this is definitely contained."

In recent days, investors focused on Deutsche Bank, whose shares have lost around more than a quarter of their value this month, including Friday's 8.5% fall, and the cost of protecting against a default on its bonds soared, even though few put it in a class with Credit Suisse.

"We are not concerned today about counterparty, liquidity issues" with Deutsche, JPMorgan analysts said on Friday.

For now, few investors see this year's events as a repeat of the systemic crisis that swept through markets in 2008, taking down Lehman Brothers and prompting government bailouts.

But investors are wary of another bank run if people think U.S. or European regulators will not step in to shield deposits.

"It's almost like the prisoner's dilemma where if everyone agrees that they won't pull their deposits then everything should be okay, but if just one person decides they are getting out then the snowball keeps growing," said Tim Murray, capital market strategist in the Multi-Asset Division of T. Rowe Price.

Murray is underweight equities, focusing on money market accounts that offer yields comparable to Treasuries.

'Highly unusual'

Apollo Global Management Chief Economist Torsten Slok said the growing divergence between the Fed fund's rate and the far lower interest rate on checking accounts is increasing the risk of bank deposit outflows. The Fed raised rates by 25 basis points on Wednesday to the 4.75% to 5% range.

"Higher rates as a source of instability for deposits and Treasury holdings is highly unusual compared to previous banking crises, where the source of instability has typically been credit losses putting downward pressure on the illiquid side of banks' balance sheets," he wrote in a note on Saturday.

Data released on Friday by the Federal Reserve showed that deposits at small U.S. banks dropped by a record amount following the collapse of Silicon Valley Bank on March 10.

Meanwhile Federal Reserve emergency lending to banks, which hit record levels, remained high in the latest week amid ongoing anxiety, data released Thursday showed.

"We're watching very closely all of the data about how much liquidity is being drawn from the Fed's different facilities," said Dawson. "If we continue to see the usage of these facilities, it could point that more banks are feeling funding constrains or liquidity needs, which means that the contagion may not be over."

U.S. authorities are considering expanding a bank emergency lending facility in ways that would give First Republic Bank more time to shore up its balance sheet, Bloomberg reported Saturday, citing people with knowledge of the situation.

'Crisis of confidence'

Uncertainty over the Fed's intentions is also amplifying investor hesitation in stocks and sparking huge swings in U.S. government bond prices, after policymakers indicated they were on the verge of pausing further increases as banking sector worries risk tightening economic conditions.

Investors piled into the safe haven of U.S. Treasuries over the past week, sending yields on the two-year note, which closely reflects Fed policy expectations, to 3.76%, the lowest since mid-September.

Further banking industry failures could mean rate cuts sooner as weakened financial conditions allow the Fed to ease up on its fight against inflation, said Tony Rodriguez, head of fixed income strategy at Nuveen. Futures contracts suggest the Fed will start cutting rates by year-end.

Falling interest rates would make dividend-paying stocks and some riskier assets such as higher-quality below-investment-grade bonds attractive, Rodriguez said.

Risk assets have been somewhat resilient despite the concerns in the banking sector, said Jason England, global bonds portfolio manager at Janus Henderson Investors. The S&P 500 is up 3.4% this year, though far off its early February highs, and it rose 1% this week, helped by a rally in tech shares.

"If inflation comes down because of disruptions in banks and you create tightening for homeowners, the Fed suddenly has its work done for it," he said.

England expects longer-duration bond yields to start to rise from current levels, making short-term bonds and money market funds more attractive.

Indeed, plenty of investors seem to be giving stocks the cold shoulder. Allocations to U.S. equities fell to an 18-year low while cash allocations crept higher in March, the most recent fund manager survey from BoFA Global Research showed.

Investors will likely remain steeled for another potential high-profile failure until the Fed or Treasury respond in a way that calms fears of another bank run, said Katie Nixon, chief investment officer, wealth management, at Northern Trust, who is focusing on tech-sector stocks with "fortress balance sheets."

"Right now it's a crisis of confidence and everyone is looking for direction," she said.

Source: Reuters

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Alex

In the United States and many other countries, the government guarantees a certain amount of each customer's deposits in the event of a bank failure, to protect both consumers and the broader financial system.

With the collapse of Silicon Valley Bank and Signature Bank and the U.S. government backstopping all deposits at those firms, here is the state of play of deposit insurance in the United States:

What is the U.S. deposit insurance limit?

Currently, the Federal Deposit Insurance Corp (FDIC)guarantees deposits of up to $250,000 per person, per bank. That limit was enshrined in law by the 2010 Dodd-Frank reform law passed following the 2008 financial crisis.

That means, for example, that a married couple sharing a savings account would be guaranteed for up to $500,000 in deposits. It also means that $1 million in savings can be insured if the cash is spread across four different accounts at four different banks. Accounts the FDIC guarantees includes checking and savings accounts, as well as money market accounts and certificates of deposit.

Customer deposits at federally insured credit unions are also protected up to at least $250,000 per individual depositor through the National Credit Union Share Insurance Fund, which is administered by the National Credit Union Administration.

Whose deposits are not insured?

Generally speaking, accounts exceeding the $250,000 limit mostly belong to entities that need a lot of cash on hand to make payroll such as small businesses, nonprofits or municipal governments.

Many other investments, such as stocks, annuities or mutual funds, are not protected from losses.

More than $9.2 trillion of U.S. bank deposits were uninsured at the end of last year, accounting for more than 40% of all deposits, according to U.S. central bank data.

What happened with depositors at Silicon Valley bank and signature bank?

The collapse of SVB on March 10 - the largest bank failure since 2008 - sparked concerns over whether small-business clients would be able to pay their staff if the FDIC only protected deposits of up to $250,000.

Some 89% of SVB's $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC.

On March 12, U.S. regulators including the FDIC announced that they would make all SVB and Signature Bank depositors whole, even those whose accounts exceeded $250,000, through a "systemic risk exception" designed to prevent broader contagion to the U.S. banking system. Any losses to the FDIC's deposit insurance fund will be recovered by a special assessment on banks, the FDIC said.

Treasury Secretary Janet Yellen denied that the emergency actions meant that a blanket government guarantee now existed for all deposits, and said during a congressional hearing that any future failure would need to pose risks similar to those seen at SVB and Signature to qualify for the exception.

In a speech to bankers on Tuesday, Yellen said that the U.S. banking system was stabilizing and steps taken to guarantee deposits in those institutions showed a "resolute commitment" to ensure depositors' savings and banks remain safe. She also clarified that the government could similarly backstop smaller institutions if they too posed contagion risks.

What if i have more than $250,000 in my bank account?

While individuals are at risk of losing their money above the deposit insurance limit if a bank fails, the FDIC frequently arranges the sale of an ailing lender to a peer institution, which would then take over all the deposits. If a sale isn't possible, the FDIC winds the bank down and pays out on the insured deposits. The process typically takes 90 days. Account holders can then can try to recover any uninsured deposits from the failed bank's liquidated assets.

What are the risks of uninsured deposits for banks?

For banks, a high amount of uninsured deposits pose their own risks. FDIC research from 2018 shows that account holders with uninsured funds are more sensitive to bad news and more quickly move funds to protect them. That means when a bank is in trouble, it may see money heading out the door when it needs it most.

Generally speaking, regulators do not discourage banks from taking in uninsured deposits, so long as they manage that liquidity risk.

Could the government raise the deposit insurance limit?

Some U.S. lawmakers have said Congress should consider whether a higher federal insurance limit on bank deposits was needed in the wake of the collapse of SVB and Signature Bank.

Senator Elizabeth Warren, a Democrat, and Senator Mike Rounds, a Republican, have questioned whether the $250,000 deposit insurance limit is still appropriate.

But increasing that limit would require legislation, which could face an uphill battle in a divided Congress heading into an election year.

Government officials have discussed the idea of increasing deposit insurance without obtaining approval from Congress as they brainstormed various approaches to solving the turmoil in banking, according to a Reuters report. However, that idea was not universally supported and is not seen as necessary by some officials.

Yellen on Wednesday that the FDIC was not considering providing "blanket insurance" for banking deposits beyond the FDIC's current $250,000 limit.

Source: Reuters

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Justin

Central Bank

Economic

Will PCE inflation further complicate the Fed’s rate path?

Hot on the heels of the FOMC meeting and the banking crisis, investors will have to digest another dose of inflation data out of America. The PCE inflation report comes out on Friday along with personal income and spending numbers. Whilst there’s been good progress in overall price pressures easing in recent months, the Fed is focusing its efforts these days on services inflation, and on that, Chair Jerome Powell’s latest assessment is that there has not been any progress when excluding housing components.

Policymakers will get the chance to take another look at February prices, this time in the form of the core PCE price index. The Fed pays a lot more attention to this particular measure of inflation so any upside surprises could boost bets of a follow-up 25-basis-point rate hike in May, which at the moment, the odds are constantly swinging above and below 50%.

Week Ahead - Eurozone and Us Inflation to Come under the Microscope after Rate Decisions_1

The strength of the consumer will be in focus too, with the Conference Board’s closely watched consumer confidence gauge out on Tuesday and the personal consumption print due Friday. The former is more forward looking so any deterioration in the March figure might be associated with the blow up of regional banks.

In other data, housing indicators from S&P Corelogic Case-Shiller Index (Tuesday) and pending home sales (Wednesday) will be important amid signs that the sector is rebounding after falling off a cliff last year when the Fed’s tightening campaign went into overdrive. The final estimate of Q4 GDP is due Thursday, and finally, the Chicago PMI will round up Friday’s releases.

With market sentiment still quite fragile in the aftermath of the bank collapses, investors are more likely to react negatively to strong data as they would give the Fed less reason to be cautious. However, this may not necessarily lift the US dollar much, as even in the most bullish scenario, the Fed’s terminal rate has permanently shifted lower.

Eurozone inflation expected to edge down again

The European Central Bank may have dropped its forward guidance in March, but since that meeting, policymakers have been eager to signal that further rate increases are nevertheless likely in the coming months as inflation remains far above their 2% target. Headline inflation could ease below 8% when the flash estimates for March are published on Friday. However, the bigger headache for the ECB is the continued climb in the underlying measures of inflation.

When excluding food, energy, alcohol and energy, the consumer price index is forecast to creep up to 5.8% in March from 5.6% in February.

Week Ahead - Eurozone and Us Inflation to Come under the Microscope after Rate Decisions_2

The longer this trend continues, the greater the odds that the ECB will remain on a tightening path and the possibility of that happening whilst the Fed goes on pause is buoying the euro. Having consolidated over the last couple of months, the euro has a good chance of surpassing its February 2 peak of $1.1033 as long as the impact from the banking crisis on the Eurozone economy remains contained.

It’s a different matter in the US, however, where there is a heightened risk of a credit squeeze even if there aren’t any fresh casualties from the fallout of Silicon Valley Bank’s collapse. Powell himself has highlighted the danger that credit conditions are likely to tighten regardless of whether there are further rate increases, as banks turn more cautious and hand out fewer risky loans.

That’s not to say, though, that the European economies won’t feel any aftershocks and investors will be on alert for any dip in business confidence. The March surveys will kick off on Monday with Germany’s Ifo business climate index, followed by the Eurozone economic sentiment indicator on Thursday.

Aussie eyes CPI data as RBA pause hangs in the balance

The Reserve Bank of Australia started its debate about pausing long before the banking turmoil and will probably be even more inclined to do so at its April meeting. Markets have currently priced in about 90% probability of a pause and inflation figures due on Wednesday could push those bets closer to 100% if they unexpectedly decline further.

The RBA is hoping that inflation peaked in December when it hit 8.4% before sharply dropping to 7.4% in February. Another fall in March would be seen as sealing the deal for an April pause, although such an outcome would not bode well for the Australian dollar.

Week Ahead - Eurozone and Us Inflation to Come under the Microscope after Rate Decisions_3

Alternatively, stronger-than-expected CPI readings would be positive for the aussie, and there could be some upside too from manufacturing PMIs out of China on Friday should they point to a further rebound in the economy in March.

Japan’s inflation picture still unclear

Sticking to the Asia-pacific region, it’s a data heavy week in Japan, with the flurry primarily taking place on Friday. Preliminary industrial production stats, retail sales and the jobless rate, all for February, are on the agenda. But of most interest to investors will likely be the March CPI prints for the Tokyo region, which are seen as a precursor for the nationwide numbers published much later.

Week Ahead - Eurozone and Us Inflation to Come under the Microscope after Rate Decisions_4

Japan’s inflation rate eased back sharply in February, taking the pressure off the Bank of Japan to further scale back its stimulus policies. The March forecast is that core CPI in Tokyo continued to moderate slightly. The yen, which has been on a roll lately against its US counterpart, might struggle to extend its gains if the forecasts are met.

However, in the event that inflation reverses higher again, this could intensify speculation of some sort of policy action by the BoJ at its April meeting, as it would come on the back of the Spring wage negotiations where labour unions agreed to an inflationary pay deal that averages at 3.8% y/y.

Source:XM

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Clean-burning hydrogen has been hyped as a potential solution to a swath of climate-related energy problems, from fuelling trucks and powering industry to generating electricity - all while emitting only puffs of harmless vapour.

The fuel is getting backing from an array of influential stakeholders, including fossil fuel firms which hope to avoid future stranded oil and gas assets by switching to the production, distribution and storage of hydrogen instead.

But for such a bright future to become reality, there needs to be a rapid and widespread surge in hydrogen demand that will justify a concurrent jump up in hydrogen production - ideally from renewable energy sources so that the fuel's only climate footprint is water.

Very little green hydrogen, or hydrogen produced from green energy sources, exists today, as most current hydrogen is made using natural gas, and known as blue hydrogen.

But several firms have committed to scaling up green hydrogen output over the coming decade, using solar or wind energy to power electrolysers that will split water into its constituent parts, hydrogen and oxygen.

How Realistic is a Hydrogen-Powered Economy?_1

The prevailing hope is that the ongoing acceleration in renewable energy development will trigger a surge in renewable energy supplies and a sharp drop in the cost of power produced from green sources.

In turn, that should drive the cost of renewable-powered electrolysis below that of other forms of hydrogen production, and allow for a rapid global surge in green hydrogen output.

Feasible Future

While industry analysts can see a viable path to greater hydrogen supply, it is less clear how the demand side pans out.

Hydrogen can theoretically be used for a variety of purposes, but it is difficult to assess the most likely major applications decades from now, even if we can assume steadily declining prices.

Further complicating the picture is that many firms which are considered as viable potential users of green hydrogen currently use very little or none of it, and will need several years and hefty budgets to retool power systems to run effectively off hydrogen.

How Realistic is a Hydrogen-Powered Economy?_2

Currently, more than 90% of the world's hydrogen is used for just three industrial applications: to lower sulphur content in diesel by refiners; to produce methanol used by fuel blenders; and to make ammonia for fertilizers and chemicals.

However, risk assurance firm DNV has taken a stab at laying out where growth is likely by geography and industry through 2050, and highlighted 15 likely usage cases come mid-century.

Industrial Heat

Currently accounting for less than 1% of global hydrogen consumption, the deployment of hydrogen as a direct heating source for industry will be the largest single usage case for hydrogen by 2050, DNV data shows.

Industrial heating will account for nearly 80 million tonnes of the roughly 341 million tonnes used globally in 2050, mainly in China and the Indian subcontinent, followed by Europe, the Middle East and North America.

How Realistic is a Hydrogen-Powered Economy?_3

As China and India look set to remain major global manufacturing hubs for decades, it makes sense that their industries will be big users of power fuels, and seek ways to reduce emissions.

However, a key challenge in those countries will be how to economically install the plumbing needed to connect industrial burners with hydrogen suppliers.

In Europe and the United States, extensive existing natural gas pipelines can be easily converted to hydrogen carriers, allowing businesses to switch over from gas to hydrogen once market conditions dictate.

Many industry and factories across Asia and elsewhere, however, run off their own coal boilers and lack a network of connecting pipelines that can potentially feed them hydrogen in a cheap and safe manner.

China and India plan to increase pipeline connectivity in the coming years, but given the prioritisation of developing renewable power over fossil fuels are unlikely to match the scale of pipeline connectivity in Europe where a vast majority of heavy industry and large manufacturers have direct pipelined gas.

Without pipelines, industries in Asia and elsewhere looking to use hydrogen may need to rely on more piecemeal delivery systems such as truck fleets, which will be more costly than wholesale pipeline systems and may slow the uptake of hydrogen as a primary fuel source.

Going Direct

Large refineries, chemical producers, smelters and fuel blending operations may have an easier time in tapping hydrogen than smaller industrial plants and factories, and look set to account for roughly half of global hydrogen use by 2050, DNV data shows.

Such businesses are more likely to receive government support for energy system overhauls than factories due to their importance to the local and international economy.

Operations like refineries and smelters also tend to be located on large and remote land parcels that can be more easily connected to pipeline systems than more numerous but more dispersed factories.

Office and residential buildings that are already connected to gas systems can also easily convert from gas to hydrogen for heating and power, and look set to account for around 6% of global use by 2050.

The aviation and rail systems are also expected to become notable users of hydrogen once prices become more attractive and industrial knowledge about handling and storage of the fuel improves.

In all, DNV data shows strong growth potential for hydrogen use across a variety of industries by 2050.

But the price of hydrogen versus alternative fuels, as well as the ability to supply the hydrogen economically to where it is needed, remain major hurdles that the industry will need to clear if the fuel is to fulfil its promise as the clean-burning solution to many of today's dirty energy problems.