Commodity Tracker: 5 charts to watch this week

In this week's pick of big themes in energy and commodity markets, solar power shows resilience in the face of coronavirus headwinds, steel price gains in the US outpace other regions, and butadiene, a key raw material for tire manufacture, stages a recovery. Plus, US gas market fundamentals and Vietnamese crude trade.

1. Solar investment outlook buoyant as capacity continues to climb in 2020

What's happening? The growth outlook for solar power remains upbeat as China recovered quicker than anticipated from the coronavirus crisis, while decarbonization policies gain momentum across the globe with China, Japan and South Korea joining Europe in pledging carbon neutrality. Concerns about the pace of solar deployment in China are fading as 2020 additions have slowly climbed above last year's level despite unwinding subsidies.

What's next? Global solar capacity additions are set to rise almost 50 GW more than previously forecast over the next six years, according to a new report by S&P Global Platts Analytics. The unit upgraded its 2020 to 2025 forecast by 7% or roughly 8 GW/year, with some 690 GW of new solar capacity to be added during the period. Europe's solar PV prospects are brightest, but further upside could emerge in the US, as the incoming Biden administration could help support extension of the federal Solar Investment Tax Credit, which has been a major driver of new capacity. The outlook for India remains more uncertain, as plant additions have slowed due to COVID-19, but a large pipeline of solar PV projects is in place and solar PV remuneration in capacity auctions remains particularly competitive relative to coal.

2. US steel coil price recovery bolstered by domestic supply shortage

What's happening? A supply shortage is leaving buyers scrambling for steel in the US and causing prices to skyrocket. The daily S&P Global Platts US hot-rolled coil price is up nearly 70% is just over three months. Typically the highest-priced market in the world for hot-rolled coil, the US was trading at a discount to European and Asian markets as coronavirus-related disruptions started later in the US. Prices globally are also increasing but at more moderate rates: Platts' FOB China HRC price is up by nearly 44% since its coronavirus-related low in May, while Northern European HRC is up 42%.

What's next? There is no relief on the immediate horizon, as buyers face limited buying options into the first quarter of 2021. Some US original equipment manufacturers and end-users face potential shutdowns as the supply chain remains tight on steel through the end of the year, according to numerous market sources. Rising coronavirus cases are adding to the woes with ArcelorMittal USA facing production disruptions as the outbreak impacts workers. Buyers are stranded with limited domestic or foreign options to fill supply needs in the next two to three months, leaving domestic mills able to continue to increase prices.

3. Butadiene prices recover from record lows as Asian tire sector drives demand

What's happening? Butadiene, a key raw material for making automotive tires, has recovered from the price slump seen in spring and early-summer, when it reached historic lows following the shutdown of downstream tire producers globally, amid coronavirus-related restrictions. Strong third-quarter demand for synthetic rubber in the Asian automotive sector has caused a dramatic rise in butadiene prices globally, and combined with limited exports from the US Gulf following several severe hurricanes, has reopened the key arbitrage from Europe to Asia.

What's next? High Asian demand for butadiene is set to continue into the new year amid bullish downstream sentiment, driven by synthetic rubber markets and also ABS plastic, used in household goods and electronic applications as well as in the auto sector. On the flipside, concern remains that the start-up of new production plants in Asia will dampen the appetite for deep-sea imports once ongoing major production outages in this region are resolved. Asian consumers have been reluctant to take cargoes beyond Lunar New Year 2021 due to uncertainty over future price movements, but more clarity is expected in December.

4. US gas markets face downside price risk on mild winter forecast

What's happening? Warm temperatures in the US are raising the possibility of weaker-than-usual winter gas demand and corresponding downside to prices. November to date US heating demand has averaged just 26.9 Bcf/d, nearly 30% below 2019 equivalent, S&P Global Platts Analytics data shows. The Northeast, which accounts for over one third of the US winter heating market, contributed nearly half the lost demand in November at US level. Benchmark US gas prices have fallen sharply as a result.

What's next? Mild US weather could endure through at least February, according a National Weather Service forecast issued Nov. 19. In December, January and February, the US Northeast, the South and much of the West face a 33% to 40% risk for above-average temperatures. In states stretching from Arizona to Florida, the upside temperature risk is even higher – estimated at 50% to 60%. With Northeast gas storage currently estimated at 1.051 Tcf – just 23 Bcf below the region's record-high level recorded Nov. 11 – lower demand this season could keep inventories elevated through March, potentially perpetuating the pressure on Northeast gas prices through next summer.

5. Vietnamese sweet crude sales under pressure

What's happening? China's state-run refiners are regular buyers of medium and heavy sweet Vietnamese grades including Su Tu Den, Ruby, Dai Hung and Bach Ho. However, they cut their average run rate to around 78.9% in October, which marked the third consecutive monthly drop from a six-month high of 83.1% in July. The growing possibility of more refinery closures in Australia could also significantly curb Vietnam's crude exports in upcoming trading cycles, as Oceania refiners are important customers of light and medium sweet Vietnamese grades like Chim Sao and Thang Long.

Go deeper: Explore crude grades with S&P Global Platts Periodic Table of Oil

What's next? Vietnam exported 270,006 mt (63,843 b/d) of crude in October, down 44.6% year on year and 35.3% lower than September, customs data showed. Vietnam's crude exports could fall to around 1.13 million mt in Q4, down 20% from the third quarter, according to traders based in Singapore and Ho Chi Minh City surveyed by S&P Global Platts. Price differentials for Vietnam's flagship export grades Bach Ho and Su Tu Den have come off by more than $1/b since Q3. Bach Ho crude was assessed at an average premium of 33 cents/b to Dated Brent to date in Q4, compared with $1.43/b in Q3.

Reporting and analysis by Michael Fitzgerald, Callum Colford, Ora Lazic, Andreas Franke, Bruno Brunetti, Philip Vahn, J Robinson