Commodity Tracker: 6 charts to watch this week

Trade flows are in focus this week, with S&P Global Commodity Insights editors and analysts keep an eye on US diesel exports to Europe and Brazil's LNG imports. In pricing, the focus is on blue ammonia in Northwest Europe and soybean prices ahead of the US harvest.

1. US Gulf Coast to Europe diesel flow on track to set record in August

What's happening? US diesel is crossing the Atlantic with record volume this summer, reaching 11.2 million barrels in July amid low clean tanker freight rates and US diesel prices. Meanwhile, US Gulf Coast refinery run rates are strong while opportunities to move diesel domestically have been limited.

What's next? August is set to beat July's record, topping 13.7 million barrels, according to the latest Commodities at Sea data. Market participants expect this trade to taper off as Gulf Coast refineries enter maintenance season and arbitrage within the US becomes workable.

2. Brazil's LNG imports set to rise in coming weeks as hydropower declines

What's happening? Brazilian authorities have decided to increase natural gas-fired power generation to maintain grid reliability as water levels in some reservoirs used for hydropower have dropped. The Electric Sector Monitoring Committee during its Aug. 7 meeting recommended reducing hydropower output in Brazil's northern region to conserve water for peak demand later in the year.

What's next? Given the potential for continued low hydropower levels, particularly in the northern region, Brazil could see a rise in LNG imports, especially from state-run energy company Petrobras. The company has reportedly been seeking LNG cargoes for September delivery and may increase its purchases if hydro reservoir conditions worsen. This trend could lead to more spot market activity and the use of LNG as a safeguard against further declines in hydropower availability in Brazil.

3. Blue ammonia prices rise; Asia-Pacific awaits policy support

What's happening? Platts blue ammonia prices in Northwest Europe regained a firm premium to other regions in July, following conventional ammonia prices higher as gas supply disruptions in Trinidad and Tobago and North Africa limited ammonia production. Platts, part of Commodity Insights, assessed blue ammonia CFR Northwest Europe at an average $550 per metric ton in July, up 10% and the highest since January. Blue ammonia prices are calculated as a premium to conventional ammonia prices, taking into account the cost of carbon capture and storage. However, market participants in Asia-Pacific say they cannot yet secure a premium for blue ammonia for commercial contracts in Japan and South Korea -- two countries driving regional decarbonization via ammonia -- with government price support not fully in place in either country and demand limited, with no incentive or obligation to buy low-carbon product established.

What's next? Policymakers in Asia-Pacific as well as in Europe must fine-tune low-carbon rules to kick-start blue ammonia markets and contracts. Final investment decisions on a number of green ammonia projects in Europe are expected soon.

4. US battery storage capacity could reach nearly 28.9 GW in Q3

What's happening? The US added 3.976 GW of battery storage capacity in the second quarter, a jump of 87.3% year on year. The Electric Reliability Council of Texas led with 1.4 GW added, bringing its total capacity to 7.74 GW or 32.6% of the US total. However, the California Independent System Operator continues to lead the nation with 9.867 GW of capacity, or 41.5% of the total, after adding 1.388 GW in Q2.

What's next? If all 5.084 GW of scheduled Q3 additions are added to the grid, it would bring the US total to nearly 28.9 GW, an increase of 21% quarter on quarter. Planned Q3 additions remain focused in the West and Texas, with less than 325 MW expected to come online in the Southeast, Midwest and Northeast. CAISO is expected to see 38.2% of Q3 additions, followed by ERCOT with 34.4% and the Western Electricity Coordinating Council region with 21.2%.

5. Expectations of record US crop push soybean prices to 4-year low

What's happening? With US farmers due to harvest a record soybean crop in September, prices for the world's most traded oilseed are close to four-year lows. The US Department of Agriculture raised its domestic production forecast by 3.5% in its monthly update released Aug. 12, that resulted in a 29% boost to the expected ending stocks for Marketing Year 2024-25 to 15.25 million metric tons. US farmers have expanded the area allocated to soybeans since 2023 and are benefitting from an improvement in yield. Brazil displaced US as the world's largest exporter of soybeans around 10 years ago, but output from South America's largest agricultural exporter is more vulnerable to weather changes. Favorable weather in Brazil since 2022 has helped to drive down prices for soybeans, which are crushed to produce meal for animal feed and oil that is consumed by humans and used for biofuels.

What's next? Soybean prices are expected to remain subdued at least until the beginning of the 2024-25 planting season in Brazil, which starts in mid-September. Another bumper crop in Brazil would put soybean prices under heavy pressure and could force farmers to hold on to their production for a longer period of time, instead of selling. Lower prices could also attract additional demand from China, depending on the recovery of its animal feed sector, which is currently quite depressed. China also holds very large inventories of soybeans across its ports and warehouses, which could limit its appetite for higher purchases.

6. Singapore's B24 biobunker sales drop to 5-month low as market considers cheaper alternatives

What's happening? Singapore's July B24 biobunker sales fell 6.2% month on month, totaling 42,500 t. The decline was attributed to lower demand as buyers explored alternative biofuels. Despite the drop, the overall sales volume remained within the 40,000 t-50,000 t range. B24 bio-bunker prices have fallen to $125-$135/t, down from $125–$140/t a month ago, reflecting a market downturn and narrower premiums. Market dynamics have also shifted as companies seek alternatives, such as engine overhauls and major maintenance, to reduce carbon emissions.

What's next? Demand for B24 biobunkers is expected to remain stable and little change is anticipated in the sector until the International Maritime Organization revises its regulations, such as the Carbon Intensity Indicator. Some market participants are optimistic, predicting that demand may pick up later in the year as shipowners focus on meeting their emission targets. However, others remain bearish, expecting the market to stay subdued until early 2025. The overall market outlook is uncertain, with differing opinions on whether demand can be sustained.

Reporting and analysis by Aaron Tucker, Angeles Rodriguez, James Burgess, Kassia Micek, Joao Pessoa, William Bland, Chau Kit Boey