Commodity Tracker: 5 charts to watch this week

European carbon prices slide amid weak demand, while Brazilian importers are capitalizing on diesel arbitrage opportunities. S&P Global Commodity Insights editors are also watching shipping routes as ship operators continue to avoid the Red Sea on security concerns.

1. EU ETS prices face pressure from bearish fundamentals, weaker gas

What's happening? European carbon prices have fallen sharply in recent weeks, dragged down by falling gas prices and fragile fundamentals. Platts, part of S&P Global Commodity Insights, assessed the EU Allowances December 2024 contract at Eur62.82/tCO2e on Sept. 19, the lowest level since April 5. But on Sept. 23, EUAs rebounded slightly and were trading near Eur64/tCO2e in mid-morning trade. A sharp fall in European gas prices pushed EUAs to multi-month lows, and demand from the industrial and power generation sectors was muted.

What's next? Some traders were hopeful that low prices could generate some opportunistic demand, especially from operators who have compliance obligations. Most analysts still expect prices to recover from October onward as seasonal demand picks up. Analysts with at Commodity Insights said prices are expected to rise in the 2024/2025 heating season. This is due "to higher power demand and the potential halt of gas transit from Russia through Ukraine, which may result in gas-to-coal switching and propel demand" for EUAs, they said in a recent note.

2. Ships expected to continue veering away from Red Sea amid Houthi attacks

What's happening? Houthi militants have attacked more than 120 ships around the Red Sea and Gulf of Aden since the Israel-Hamas war started on Oct. 7, 2023. Many ship operators have consequently opted for the Cape of Good Hope route for safety reasons, with recent IMF PortWatch data showing average daily ship transits via the Bab al-Mandab Strait stood at 25 in the week ended Sept. 11, down from the year-ago level of 76.

What's next? The diversions have led to higher bunker consumption and greenhouse gas emissions due to the longer voyages amid typically higher sailing speeds as ships seem to avoid long delays. Geopolitical strain has made insuring vessels with ties to countries like the US, UK and Israel more complex, as the Houthis have vowed to target those ships.

3. Brazil diesel import arbitrage expected to last few more weeks

What's happening? Brazilian importers have been taking advantage of a continuing gap between diesel imports and local prices. As foreign fuel persisted at lower levels than domestic, orders were ramping up, and the thinner spread over Russia-origin diesel was supporting a higher interest in US Gulf Coast ULSD. Platts assessed the US- and all-origin diesel spread in South Brazil at 6.27 cents/gal on Sept. 20, plummeting from 22.19 cents/gal recorded on April 22. This, while the ULSD import parity price at the port of Itaqui fell to Real 3,299.84/cu m, a drop from Real 4,175.29/cu m on July 2.

What's next? Market participants believe this import window will remain opened for at least a few more weeks. There is market chatter of state-owned Petrobras raising diesel prices to close that gap, although nothing has been confirmed. Meanwhile, participants also expected Russian diesel prices to drop, making USGC cargoes less attractive in comparison.

4. India wind, solar current-year I-REC prices hit all-time low

What's happening? India's International Renewable Energy Certificates for wind and solar hit an all-time low on Sept. 24, driven by significant oversupply. Unredeemed I-RECs now total 10.6 million certificates, including 1.96 million for vintage 2024 and 4.04 million for vintage 2023. Platts assessed the vintage 2024 I-REC contract at ₹42/MWh (50.2 cents/MWh), marking the lowest price for the current year's contract since assessments began. This represents a 41% decline since April, Commodity Insights data showed. Market sources report weak demand since December 2023, with buyers anticipating further price drops due to the surplus. Despite a rise in buying interest during June-July, supply vastly outpaced demand.

What's next? Market participants expect redemptions to rise in the coming months as buyers look to capitalize on low prices. However, uncertainty remains following the Integrity Council for the Voluntary Carbon Market's announcement that existing renewable energy methodologies will not qualify for the high-integrity Carbon Core Principles label. This has led to a wait-and-see approach from many buyers, with renewable energy project owners in India possibly shifting to I-RECs to monetize their power generation.

5. European MMA prices fall on weakening demand and incoming imports

What's happening? European methyl methacrylate, or MMA, prices decline due to weak demand and incoming imports driven amid falling freight rates and lower prices in Asia. MMA is mainly used in the production of polymethyl methacrylate, which is used for cast and extruded sheet and resins. MMA is also used for acrylic surface coatings and adhesives, among other applications. Sources also said current weakness in MMA demand in Europe was due to restocking in the previous months.

What's next? Market players are expecting more import material into Europe amid weak demand in Asia. At least 300 metric tons per month are on water and are expected to reach Europe over the next couple of months. No supply chain issues are anticipated.

Reporting and analysis by Eklavya Gupte, Scott Chen, Max Lin, Kauanna Navarro, Ahmad Afiq Muhammad Zahir, Maria-Eleni Tsimeki