Commodity Tracker: 4 charts to watch this week

The impact of Lunar New Year holidays on demand and prices, alumina supply, Panamax rates and used cooking oil are in focus this week.

1. Will the oil price correction seen toward the end of 2022 continue?

What's happening? Dated Brent was trading just under $100/b but slid to a low of $76.10/b on Dec 9. With the exception of the pre-Christmas cold blast, winter weather, season-to-date, has been warmer than normal and warmer than last season in the US, Europe, and Japan. That warmth, along with China's demand weakness were key drivers allowing prices settle back. Prices have since recovered back to around $80/b and have even tested as high as $86/b. Winter weather on average in January is expected to be warmer than normal and last year, but China appears to be moving past lockdowns and the impacts of coronavirus.

What's next? Weather for February remains critical and an important component to short-term demand. China's reopening will also be critical, but there are cross currents. The Lunar New Year holiday, which begins Jan. 22, will see reduced economic activity, but perhaps a pickup in air, sea and ground travel, and that is very tilted to toward transportation fuels such as gasoline, diesel, and kero/jet. Following the holiday period, full normalization of the Chinese economy remains a key driver of demand and the snap back could be sharp. Global oil demand is seasonally tempered in the first quarter, and then reaches its annual low in April before picking up. By August, demand is expected to rise 5.3 million b/d from that April low. Without help on the supply side, analysts at S&P Global Commodity Insights believe prices could indeed rebound back above $100/b.

2. Australian alumina prices encounter support on Alcoa's force majeure event

What's happening? The benchmark Platts Alumina Index (PAX) FOB Australia assessment rose $18/mt(opens in a new tab) within a week following the Jan. 9 output curtailment at Alcoa's Kwinana alumina refinery(opens in a new tab) in Western Australia on the back of a gas shortage in the state. S&P Global Commodity Insights reported Jan. 15 that Alcoa had subsequently notified its alumina customers of a force majeure(opens in a new tab). Meanwhile, domestic alumina and SHFE aluminum(opens in a new tab) prices in China are seeing signs of upward pressure ahead of the Lunar New Year festivities amid logistical challenges, tight bauxite supply and production cost support.

What's next? Market participants are closely monitoring further updates from Alcoa on upcoming alumina shipments. Alcoa is due to report Q4 earnings Jan.18, which could provide further updates on the company's production guidance following disruptions to its Australian operations. While the Chinese market will soon be away for the Lunar New Year holidays, sources will be keeping a close watch on macroeconomic indicators to gauge downstream aluminum demand recovery.

Where do you see Australian #alumina FOB prices at the end of Q1?

— S&P Global Commodity Insights Metals (@SPGCIMetals) January 16, 2023

Read more: Metals Trade Review(opens in a new tab)

3. Asia Pacific dry bulk freight rates hit 3-year lows

What's happening? After fetching bumper earnings for over two years, the returns for Panamax and Supramax dry bulk ships plying Asia Pacific fell to a three-year low(opens in a new tab) on Jan. 12 on the back of contraction in demand and abundant tonnage supply across the region. Supply of vessels in Southeast Asia increased as ships that were mostly doing round trips along the Chinese cabotage or coastal market seek overseas cargoes going back to China. Demand for spot loading dates remained thin, especially from coal, prices of which have been sliding lower since December 2022.

What's next? Consensus view among market participants is that the rates have bottomed out with little room to drop further. Increased demand post Lunar New Year holidays is expected to lend support to the rates.

4. China's UCO exports seen rising in 2023

What's happening? China's used cooking oil exports over January-October stood at 1.383 million mt, outpacing the 1.035 million mt exported over full year 2021, according to latest customs data. The country's used cooking oil methyl ester or UCOME biodiesel exports at 1.468 million mt over January-October also outpaced full year 2021 exports of 1.293 million mt.

What's next? Demand for UCO as a feedstock is expected to increase further in 2023 as sustainable aviation fuel mandates take off globally and oil majors position themselves for a post-carbon world. China's increasing exports of UCO and UCOME to Europe are set to continue in 2023 with the EU Renewable Energy Directive or RED II driving higher usage mandates. This, coupled with SAF demand increasing over the next 2-3 years, could see UCO taking an increasing share of the biodiesel market. Chinese UCO could also make its way into the US market, if the arbitrage is open and export hurdles were overcome, as US demand for UCO as feedstock for hydrogenated vegetable oil or HVO plants increases.

Reporting and analysis by Alan Struth, Jenson Ong, Shriram Sivaramakrishnan, Donavan Lim