Commodity Tracker: 4 charts to watch this week

Aluminum markets are in focus this week, with premium negotiations underway between global sellers and Japanese buyers for contracts over the April-June quarter. In the US market, primary aluminum prices have been on an uptrend since mid-March. S&P Global Commodity Insights editors and analysts are also watching LNG prices in the Mediterranean, while solar could exceed gas-fired power in Europe's core markets in Q2.

1. Japanese Q2 aluminum premium negotiations trend higher on supply risks, broader Asian strength...

What's happening? The first quarterly aluminum premium contract over April-June was reported at $145/mt, plus London Metal Exchange cash settlement average of the shipment month, CIF Japan. The reported premium for this first Q2 MJP deal represents an increase of about 60% from the Platts Q1 MJP assessment of $90/mt, and is higher than any of the QMJP settlements in 2023. Platts is part of S&P Global Commodity Insights.

What's next? Negotiations are still underway across the industry and more transactions are expected to be reported over the next two weeks or so, according to market participants. Prices continue to be buoyed by rising premiums observed in South Korea, China and the broader Asian continent. The Chinese import arbitrage window widened across March with Shanghai Futures Exchange primary aluminum futures rising on downstream demand, attracting inflows despite expectations of Yunnan aluminum smelters restarting curtailed capacity.

2. ... while US aluminum prices look to extend rally after hitting 6-week high

What's happening? US primary aluminum prices ticked up in mid-March for the first time in nearly two months. The Platts spot US aluminum transaction premium rose to a six-week high of 18.40 cents/lb plus LME cash, delivered Midwest, on March 21, up 0.40 cents/lb from the previous day. Market participants attributed the increase to tighter scrap supplies, decreasing producer tonnage and higher forward premiums.

What's next? Aluminum buyers will watch whether the most recent increase is sustainable for the near term, and whether it indicates an inflection point in a market that largely saw prices decrease throughout 2023. Trader sources have indicated that there could be an ongoing momentum in the market, supported by rising unit replacement costs and traders looking to cover inventory ahead of an expected demand increase.

3. Improving arbitrage to Asia sparks higher Med LNG prices

What's happening? Improving arbitrage opportunities to Asia have pushed up LNG prices in the Mediterranean, with buyers in the East of the region looking to attract additional cargoes while West Med players seek to redirect cargoes to Asia. The widening arbitrage to Asia saw some new opportunities open up in the week started March 18, traders said. Shipping sources saw some spot requirements in the East Med push up activity and open the door for players with capacity in the Atlantic.

What's next? While US economics have been worn away by global shipping constraints, traders said current economics were strong enough to incentivize sellers in the West Med to take their cargoes to India and elsewhere in Asia where netbacks are stronger. In the East Med, several traders said despite the recent strength in Italy and the East Med to attract additional supply, Turkish buyers have been quiet. Buyers in the Turkish market are typically willing to pay higher premiums to ensure supply security. Traders expect that demand in the East Med may begin to dwindle into April and May. While some inbound volumes are expected into the region, March is still projected to be weaker than February imports.

Further reading: Platts LNG Daily

4. Europe's booming solar sector to squeeze fossil generation this spring

What's happening? Europe has added over 100 GW of solar capacity in the last two years, with now over 250 GW installed in the EU27 alone. S&P Global analysts forecast solar power output to exceed gas-fired power in Q2 in Europe's core markets (EU10) for the first time. Solar is projected to generate 87 TWh across 10 European markets in Q2, up 18% on year, while gas-fired output is forecast to fall 31% on year to 58 TWh.

What's next? Midday hours will feel the impact of the solar boom most, with peaks already nearing 100 GW in second half of March across the continent. "We expect to see even more negative and low-priced hours, particularly during periods when high winds overlap with the solar peak," said Kerry Thacker-Smith, senior power analyst at S&P Global. Another 150 GW of solar capacity additions are forecast for this year and next, according to S&P Global's clean energy outlook.

Reporting and analysis by Jenson Ong, Nick Lazzaro, Aly Blakeway, Andreas Franke