Commodity Tracker: 5 charts to watch this week

Global corn prices hit new highs on uncertainty around crop sizes, while cobalt hydroxide prices are also seeing bullish movements on supply concerns, in this week's pick of energy and raw materials trends. Plus, European gas storage, South Korean coal imports and clean tanker rates on the UKC-Baltic route.

1. 1. Global corn purchases seen slowing in H1 as prices soar

What's happening? Corn prices have hit multi-year highs after the US Department of Agriculture recently cut its estimate of the US crop size sharply, while production prospects of major suppliers such as Ukraine and Argentina look weaker. US corn futures, a global benchmark, were trading at $5.29/bu Jan. 21, up 70% from a 10-year low seen in April 2020. Uncertainty over the size of Brazil's 2020-21 corn crop has also lent support to the prices. The US, the world's largest corn exporter, has seen its 2020-21 total commitments reaching record highs as buyers rush to secure supplies amid tightening global corn stocks and China's growing grain demand.

What's next? Corn crop supplies from major South American exporters Brazil and Argentina usually start picking up pace in June, and analysts expect this to keep prices elevated for the next few months. Livestock and feed manufacturers are likely to trim their corn buying as high prices reduce their profit margin. As a result, except for China, major corn importers are expected to pare down their buying in the first half of 2021.

2. 2. Cobalt hydroxide price shows no signs of easing amid supply tightness

What's happening? Cobalt hydroxide prices have been climbing for six consecutive weeks, due to a number of bullish factors. Tight availability combined with strong demand have been the main drivers, with refiners in China looking to boost dwindling inventory levels. There have also been ongoing supply concerns, due to fears that new waves of COVID-19 could affect supply from the Democratic Republic of Congo and the flow of exports through South Africa's Durban port. Added to this are freight issues—congestion at Chinese ports and the global container shortage—hindering transport of cobalt hydroxide to China.

What's next? Given the supply issues, market tightness and strong demand, trading source expect prices to continue to rise at least until the Lunar New Year holidays, with offers already rising to $16.50/lb CIF China. Eyes will also remain on the supply situation in Africa.

3. Effects of ramp-up in European gas storage offtake could be felt into summer

What's happening? European gas storage sites have been emptying quickly in recent weeks as traders look to benefit from strong storage economics—and are now just 58% full. In the summer of 2020, European gas prices were at multi-year lows, encouraging injection into storages, with EU stock levels almost reaching 100% again by mid-October. With European gas prices now up at the Eur20/MWh level, the incentive to take the gas out is strong, resulting in significant rates of withdrawal.

What's next? The rapid depletion of stocks could be a cause for concern if Europe is hit by another wave of late winter cold weather, especially with Russian gas flows constrained by limits to Ukrainian transit. There is also a longer-term impact, with Europe set to require significant gas buying this summer to replenish stocks, and LNG likely to be a popular source of supply.

4. S. Korean year-end thermal coal imports hit six-year low

What's happening? The South Korean government has shifted its electricity generation away from coal and towards gas, implementing a policy in 2019 to close coal-fired power plants over the winter period in order to reduce pollution. A cold snap in January 2021 has seen South Korean spot coal and gas demand climb, and the government is considering relaxing its coal plant closure program to ensure electricity supply.

What's next? Although the cold snap has seen an increase in spot coal buying enquiries, S&P Global Platts Analytics expects year-end (December-January) coal imports will fall to a six-year low. There is still potential for more coal-fired power generation during the winter period, with coal plant utilization rates hovering around the 60% level. However, expected milder weather as we move into February will see the surge in fuel demand decline and electricity generation revert back to historically normal levels.

5. Ice premiums grip Baltic-UKC clean tanker market

What's happening? Ice premiums in the clean tanker Handysize market have led to Baltic-UKC freight indications displaying a 45 point premium against cross-UKC indications in the week—the widest premium against the two assessments since January 2019. Conditions at almost all key Baltic ports in the clean market have forced charterers to impose ice class vessel restrictions for loading cargoes. But while ex-Baltic load rates have driven up due to a reduced pool of options for charterers, freight rates loading in the UK-Continent have remained largely steady as more vessel availability in the north sea basin has kept non-ice class vessels on the outside looking in.

Go deeper: Feature - Clean tanker West of Suez market braced for continued products demand slump

What's next? Should more Baltic-load cargoes be pushed to the market in the weeks ahead, it could further stretch the existing ice premium for Handysize tankers. For non-ice class vessels, potential increased complications due to a temporary closure at ARA ports could prompt some of these owners to look for cargoes elsewhere. However, increased ice premiums on freight markets could also stifle appetite for further shipments ex-Baltic to the continent, with ultra-low sulfur diesel (USLD) stocks in the ARA-region already reaching oversupply. Coronavirus lockdown restrictions continue to crimp ULSD demand in the continent, though minimum run rates in European refineries mean they are unable to assist in tightening availability of product in the market.

Reporting and analysis by Mugunthan Kesavan, Jacqueline Holman, Matthew Boyle, Chris To and Stuart Elliott