Daily Update: April 27, 2022

Start each business day with our analyzes of the most pressing developments affecting the markets today, along with a curated selection of our latest and most important news on the global economy.

Russia suspends natural gas supply to Poland and Bulgaria

Russia has said it will stop supplying natural gas to Poland and Bulgaria, a move that increases risks to Europe’s overall energy security and tensions with the West.

After the two European countries refused to settle their payments in roubles, Polish oil and gas company PGNiG and Bulgarian natural gas distribution company Bulgargaz said they received a notice yesterday from Russia’s Gazprom that all natural gas supplies would be suspended starting today, according to S&P. Global commodity outlook. Russian President Vladimir Putin began requiring on March 31 that all EU buyers buying Russian gas pay in rubles through a new currency conversion mechanism, or face the suspension of supplies. The European Commission advised member states on April 22 to ask their Russian counterparts to honor their existing contractual obligations and deposit their due payments in euros or dollars to remain in compliance with the sanctions. EC President Ursula von der Leyen today warned that Russia’s ruble payment demands creates a “high risk” for EU businesses.

PGNiG and Bulgargaz believe that Gazprom’s suspension of deliveries is a breach of their long-term contracts, and that they could justify the lost supplies with alternative arrangements. But Russia’s decision to stop supplying gas to parts of Europe raises questions about how the EU will ensure its energy stability and security – and how the West will respond to Russian aggression on the international scene as it waged its war in Ukraine.

“Gazprom’s announcement of a unilateral stoppage of gas delivery to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail. It is unjustified and unacceptable. And this once again shows Russia’s unreliability as a gas supplier,” EC President von der Leyen said in a statement today. “We are prepared for this scenario. We are in close contact with all Member States. We have worked to ensure alternative deliveries and the best possible storage levels across the EU.

Russia is the world’s largest exporter of natural gas and supplies the EU with around 40% of its supply. While the bloc has made clear its ambitions to reduce European demand for Russian gas by two-thirds before the end of the year, the EU still needs Russian gas and risks being unable to eradicate its short-term addiction. Natural gas prices in Europe have jumped on the announcement of the suspension of Gazprom’s supply. S&P Global Ratings believes that the EC’s proposal to limit imports of Russian oil and gas alone could have market consequences, leading to even higher gas and electricity prices, increasing the risk of shortages. of gas and causing a decline in the bloc’s gas utility sector.

If threats to stop deliveries to Poland and Bulgaria are any indication, the prospect that Russia could clog pipelines on all natural gas supplies to Europe is no longer inconceivable, and the ripple effects possible could be disastrous.

Meanwhile, Gazprom announced last week that it plans to fill its domestic natural gas storage sites to record storage volume before winter.

“With our G7 partners, we have made our position clear: agreed contracts must be honored… 97% of affected contracts explicitly stipulate payment in euros or dollars. Companies with such contracts should not accede to requests Russians,” an EC spokesperson told S&P. Global Commodity Insights on April 22, ahead of Gazprom suspension notices, when the EC provided advice to bloc member states on how to pay for Russian gas without breaching EU law under the Ruble Conversion Decree from Moscow. “The EU will continue to respond in a united manner to this latest attempt by Russia to circumvent our sanctions.”

Poland announced yesterday that it would offer to charge EU member states for using Russian energy. The CEO of Ukraine’s national energy company Naftogaz Ukrayiny, Yuriy Vitrenko, on April 23 demanded that payments from European buyers for Russian gas be paid into escrow accounts, according to S&P Global Commodity Insights.

Russia had previously warned that it “remains a reliable supplier, a world-class guarantor of energy security. We appreciate this reputation, but we are ready for a fierce confrontation in the energy sector, if the need arises,” Nikolai Kobrinets, director of European cooperation at the Russian Foreign Ministry, said in a statement. interview with Interfax on March 12, according to S&P Global Commodity Insights: “The European Union certainly wouldn’t benefit, because we have a bigger margin of safety and stronger nerves.”

Today is Wednesday, April 27, 2022and here is today’s essential intelligence.

Written by Molly Mintz.


Though Brazilian states are brimming with cash, spending pressures are growing

Following the large support package received in 2020, the two-year public wage freeze and the revenue windfall in 2021, Brazilian states have started 2022 with significant cash reserves. However, slowing revenue growth and strong pressure to increase wage bills and infrastructure spending in the wake of the pandemic will test liquidity resilience. In the view of S&P Global Ratings, strategic liquidity planning will be crucial in an environment of limited access to sources of borrowing, which has become more stringent recently in an effort to promote fiscal sustainability of states.

—Read the full report of S&P Global Ratings

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Capital markets

“It’s been a wild ride,” Hycroft Mining CEO says following AMC investment

After coming close to bankruptcy in early March, Hycroft Mining Holding Corp. rode a wave of interest from retail investors and a major influx of cash from AMC Entertainment Holdings Inc. and mining investor Eric Sprott to turn things around. Investors had long hoped the mining company could extract the precious metals from the vast resources of its namesake Hycroft gold-silver property in Nevada, but a proprietary leaching process proved unprofitable, pushing the company to the brink of failure. bankruptcy.

—Read the full article from S&P Global Market Intelligence

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International trade

Anticipate the unknown: Does supply chain disruption lead to increased credit risk?

Inefficiently functioning supply chains have come under increasing scrutiny of late, with the risks magnified at the height of the COVID-19 outbreak, when companies have had to struggling to balance supply constraints with changing consumer demand. Despite the easing of COVID-19 related restrictions across the world, supply chains are struggling to return to pre-pandemic levels. The Russian-Ukrainian conflict, critical component shortages, rising energy and raw material prices, Omicron variant-related lockdowns in several Chinese cities, and a host of other issues have put renewed pressure on the flow of goods.

—Read the full article from S&P Global Market Intelligence

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Energy transition: Asia-Pacific faces a meteoric rise towards a cleaner future

The Asia-Pacific energy transition will be a difficult journey. A lot of twists and this is only the beginning. By global standards, the region faces considerable hurdles as it transitions to renewable and stable forms of energy. Dependence on fossil fuel-based generation remains close to 70% and demand for electricity is growing, with significant investment needs. The stage may be set for action, but each country will reach the top at its own pace. Achieving this will require enabling policies and respite from the high cost of technological solutions.

—Read the full report of S&P Global Ratings

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Energy and raw materials

Infographic: Markets brace for oil and gas demand destruction as China pursues zero COVID policy

The current COVID crisis in China is one of the key events driving commodity markets. Widespread restrictions in several key cities as Beijing sticks to its zero COVID strategy are threatening the country’s economic growth prospects. A slowdown in demand for oil and gas is widely expected, although steel may hold up as fiscal stimulus is focused on real estate and infrastructure. “We have revised down China’s oil demand to almost no growth this year due to the loss of demand in the second quarter. It remains uncertain whether the loss of demand in the second quarter will be offset by a recovery in demand. in the second half of the year. This will increase the possibility of further downgrades.” said Wang Zhuwei, head of oil analysis in Asia at S&P Global Commodity Insights.

—See the full infographic of S&P Global Commodities Outlook

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Technology and media

Listen: Next In Tech | Episode 62: ML in Action: Credit Risk Automation

Next in Tech talks a lot about the theoretical aspects of ML/AI, but this episode brings in Giorgio Baldassarri and Kieran Shand from S&P Global’s Credit Modeling and DMS teams to talk about the practicalities of Machine Learning (ML) implementations with the host Eric Hanselman. They tackle a complex problem of tracking credit risk and building ML models to identify higher-risk credit instruments. This is a situation where data may be incomplete and, in a regulated industry, model explainability is critical.

—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence

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