Commodity Tracker: 5 charts to watch this week

Commodities are finding support from rising demand after the COVID-19-induced doldrums. In addition, products from energy to emissions to scrap steel are being influenced by other independent factors ranging from policy to infrastructure to shipping constraints, as this week's Tracker shows.

1. 1. JKM rallies as high Asian demand meets ongoing supply, logistic constraints

What's happening? S&P Global Platts Analytics had long expected strong Asian demand growth in Winter ‘20, a dynamic that has now materialized with Asian imports 86 million cu m/d above 2019 levels (as of Dec. 8, 30-day moving average). On the supply side, growth in US exports has not been able to balance unplanned maintenance, upstream and infrastructure issues affecting other suppliers. With exports down in the Middle East and Africa, Platts JKM is needing to price in more expensive, further afield supply sources, and has rallied in the past week to reach $11.23/MMBtu on Friday.

What's next? Asian downstream demand is decisively inelastic in the short term, and material end-use demand destruction would not filter into balances until the end of Q2'21 at the earliest. Looking forward, Platts Analytics expects an uptick in Middle East and West African supply (+35-40 million cu m/d), as well as from the US will help resolve the imbalance in Asia. That said, the region will still be slightly net short, and thus the marginal cargo will remain US supply via the Cape or NWE reloads, however low vessel availability and corresponding high freight rates may hamper the effort to rebalance in Asia.

2. 2. EU carbon hits all-time intra-day high on tighter emissions target

What's happening? EU carbon emissions allowance prices surged to an all-time intra-day high of Eur31.30/mt Dec. 11. The move came as EU countries agreed a stronger 55% emissions reduction target for 2030, against a 1990 baseline, and ahead of a delayed start to carbon auctions and annual free allocation of allowances in 2021.

What's next? The market will be watching closely to see if carbon prices can sustain the recent higher levels or even push into higher territory. A number of bullish elements remain in play, including the potential for colder winter weather to drive the European power complex higher, and strength in the wider commodity and stock markets as several countries gear up to roll out vaccines to protect against the coronavirus. This has raised the prospect of an end to lockdowns, potentially allowing a recovery in demand for energy and commodities.

3. Construction staple PVC prices top record-highs

What is happening? Prices of key construction material PVC are at record highs globally, on the back of a continued supply crunch stemming from planned and unplanned outages at major production sites since the industry began recovering from the summer lockdowns. Several force majeures in Europe and the US remained in effect in December, with unclear restart timelines. The pandemic impact on the supply chain, the hit to US production from Hurricane Laura, and the recent lack of empty freight containers in Asia have combined to exacerbate PVC market tightness in all regions.

What is next? ThePVC industry expects prices to remain high going into the first quarter of 2021. Even if the force majeures in Europe and US are lifted, stocks will take time to rebuild, with additional re-stocking is needed ahead of annual spring-time turnarounds. In addition, strong demand will continue in the US, Europe and China domestic markets. Major PVC importers India, Turkey and Brazil will also be preparing for the next construction season. While the long-term pipeline for construction projects remains unclear amid wider economic uncertainties, some works postponed from this year need to be finished, while seasonal renovation and housing works underway will give additional boost to the industry.

4. 4. Norwegian prompt power prices spike on NordLink debut

What's happening? The start of commercial operation on the 1.4-GW NordLink subsea cable between Norway and Germany Dec. 9 saw hourly power prices in Norway's NO2 zone spike almost to Eur100/MWh ($121/MWh), while the day-ahead contract doubled day-on-day to Eur40.46/MWh. Having averaged below Eur5.00/MWh through November, Norwegian power prices have responded to closer integration to the more expensive northwest European market.

What's next? For years Norwegian politicians were weary of interconnection projects to continental Europe because of the feared knock-on impact on domestic bills. The wider societal benefits, however, are huge. As of early December, Norway has hydro stocks of 80 TWh stored in state assets that will fill state coffers. Connecting this massive fast-response resource to Germany and, late next year, to the UK will endorse Norway's reputation as Europe's battery, helping neighboring markets integrate more wind and solar.

5. 5. US exporters see further strength in Turkish scrap market

What's happening? S&P Global Platts' index for Turkish imports of premium heavy melting scrap 1/2 (80:20) was at $400/mt CFR on Dec. 10, up $15/mt on day, to reach the highest level since Jan. 2014. The CFR Turkey price has risen by almost $120/mt since early November. Strong finished product order books at Turkish mills have led to firm scrap demand, with some mills even buying deepsea bulk scrap cargos as far ahead as H2 Feb. 2021.

What's next? US recyclers are targeting $415-$420/mt CFR for HMS 1/2 (80:20), which, if realized, would mean an eight-year index high. US scrap exporters had largely held back during the recent price rally, with Turkish mills mostly heard to book cargoes from Baltic, Benelux and UK suppliers. These suppliers are now heard to have limited cargo availability as they focus on fulfilling existing orders, leaving US sellers to target further increases, with mill scrap demand still strong.

Reporting and analysis by Ora Lazic, Henry Edwardes-Evans, Viral Shah, Frank Watson, Samer Mosis, Luke Cottell