Commodity Tracker: 4 charts to watch this week

The weather in Europe is top of mind for S&P Global Commodity Insights editors this week, with wheat production in focus amid a heat wave. European steel and raw materials, Asian used cooking oil and Russian coal prices are also in focus.

1. Continued heat waves in Europe could weigh on wheat output, exports

What's happening? Europe is seeing continued heat waves along with poor rainfall – conditions which are likely to weigh on its wheat yields. Parts of Greece, eastern Spain and southern Italy are seeing severely high temperatures, the European Centre for Medium-Range Weather Forecasts said Aug. 2. The EU Joint Research Centre's Monitoring Agricultural Resources unit, or MARS, reduced its soft wheat yield estimates for marketing year 2023-24 (July-June) to 5.8 mt/ha in July from 5.92 mt/ha in June. Most of Europe, especially France and Germany, are expected to see normal rainfall during the next two weeks, according to MARS.

What's next? In its July update, the European Commission forecast EU soft wheat output in MY 2023-24 would be 127.4 million mt, against 129.9 million mt seen in the previous estimate. A drop in the output may lead to a rise in prices in coming months and might weigh on its exports during the season. The EU is expected to export 34 million mt in MY 2023-24, against 36 million mt estimated for last year, said Victoria Sinitsyna, senior grains analyst with S&P Global Commodity Insights.

Related content: Agriculture Weather Watch

2. Europe HRC steel-raw materials spread narrows, pressured by lower steel prices

What's happening? The spread between European hot-rolled coil steel and raw materials narrowed in July to the lowest since December 2022 as steel prices continued to weaken. Stable costs and trade financing constraints were heard cutting out excess production and capital availability. Platts HRC prices averaged Eur664.52/mt ex-works Ruhr in July, down 3.5% from June, and the weakest so far this year. Platts is part of S&P Global Commodity Insights. Iron ore and coking coal prices in July were little changed on the month, while European ferrous scrap declined. Even with a stronger euro aiding import costs, crude steel costs were marginally higher from June, leading to weaker indicative steel margins and less incentive to maximize production with higher-grade raw materials.

What's next? European HRC-raw materials spread may continue to wrestle between regional market demand factors for steel and the impact on prices of shifts in raw materials supply with demand in China and India. Steel supply from returning regional blast furnace capacity from July and an interest to meet operational efficiency will be keenly tracked with demand. In case market imbalances push spot prices lower and prompt supply adjustments, weaker European output in the second half may be seen for a second consecutive year. The effect on iron ore prices as a result of any steel production controls in China may limit further changes in spreads, with steel and iron ore markets closely tracking cautious broader economic sentiment.

3. Asian used cooking oil price stages rebound

What's happening? Used cooking oil price levels in Asia pushed higher in the past two weeks on the back of robust buying reported from trading houses. Chinese UCO are being shipped not only to the US, but also to Europe amid speculations European UCO stock levels have been depleted after drawing down excessive supplies in the continent. UCO offer in bulk shipments climbed to $950-$975/mt, according to offers heard by S&P Global Commodity Insights last week, up almost $100/mt on the month. In Southeast Asia, price discussions centered around the $950/mt levels, with unconfirmed trades being seen at around the same price points.

What's next? Market participants in China expect UCO levels to trend higher, with traders continuing to accumulate stocks in anticipation of further gains as demand from America remains steady and Europe replenishes UCO stocks.

4. Australia seen clawing back lost coal market share; Russia loses price advantage

What's happening? Russian coal exports are slowing down from the peak touched during Q4 2022 and Q1 2023 as the lure of discounted supplies waned following a recent uptick in prices. Buyers who had jumped at the opportunity to purchase discounted coals are quickly moving towards cheaper and alternative sources including Australian coal. The average price of Russian 6,000 kcal/kg NAR coal fell from $210.33/mt FOB Pacific in H1 2022 to $101.36/mt in H1 2023, according to Platts data from S&P Global Commodity Insights. In the May-July period, it averaged $104.81/mt, indicating a gradual rise in prices. Meanwhile, the average price of Australian low-ash 5,500 kcal/kg NAR FOB Newcastle coal fell 37.38% on the year to $117.66/mt in H1 2023, but averaged at $97.75/mt in the May-July stretch.

What's next? Market participants are seeing early signs of weakening Russian exports, which are likely to sustain throughout H2 2023, leading to annual coal sales volumes staying lower than 2022 levels. Once again, Russia may have to look elsewhere to export its coal given that the country had to find willing buyers amid economic sanctions levied on the country following its conflict with Ukraine.

Reporting by Sampad Nandy, Hector Forster, Donavan Lim, Vaibhav Charkaborty