Commodity Tracker: 5 charts to watch this week

This week, S&P Global Commodity Insights editors take a closer look at French nuclear production, the widening arbitrage between Asian and European LNG prices, Indian wheat supply and prices, and more.

1. Slow recovery in French nuclear generation leaves Europe exposed to gas prices

What's happening? French nuclear production reached an all-time low of 279 TWh in 2022. Low French nuclear generation supported Western European gas-fired dispatch for much of last year and the performance of the French fleet will again play a key role in determining Europe's power generation mix in 2023.

What's next? French utility EDF will take another seven reactors offline for corrosion repairs in 2023 but expects lower downtime versus 2022. Analysts at S&P Global Commodity Insights forecast a limited recovery in French nuclear output to 322 TWh in 2023, which will be met by lower German and Belgian nuclear dispatch. A forecast decline in Western European fossil fuel generation is not linked to recovering French nuclear output but to a recovery in hydro dispatch, an uplift in wind and solar PV generation, and another year of power demand losses. But any weather-linked uplift in demand or decline in renewable output will again increase Europe's reliance gas-fired power generation.

2. Asia may attract more LNG cargoes as premium to European LNG widens

What's happening? The gas market has emerged from a warmer-than-expected winter with healthy inventories and European LNG prices have been under pressure. This has helped Asian spot LNG prices widen their premium to LNG prices in Europe, allowing for more cargoes to be sent to the Asian market. The spread has remained largely in positive territory since Dec. 22, showing that Asian buyers were willing to pay a slight price premium for spot cargoes over their counterparts in Europe to attract more volumes from the Atlantic.

What's next? A decline in LNG shipping rates has further helped widen the price arbitrage between the Pacific and Atlantic basins. The favorable arbitrage could bolster LNG supply for Asian markets into the second quarter of 2023, as sellers divert volumes and bring prices down to levels that stokes new buying interest. Price-sensitive buyers in China, India, and Thailand that are expected to provide a price floor for spot LNG below $15/MMBtu.

3. Asian paraxylene prices gain from Chinese demand, upcoming US driving season

What's happening? Spot prices in the Asian paraxylene market hit record highs in January on the back of an anticipated surge in Chinese demand as well as expectations of an upcoming draw by the US of PX and other aromatics ahead of the gasoline blending season. The Asia PX CFR Taiwan/China Market hit $1,082/mt Jan. 30.

What's next? Chinese buying interest for paraxylene is expected to rise significantly after the Lunar New Year holidays, amid dwindling domestic inventories and to cater to demand as the domestic economy comes back to life. Similarly, the upcoming US driving season could see more cargoes of aromatics such as PX, benzene and others move West for use as gasoline octane boosters. Despite an expected rise in Chinese domestic production, aromatic demand cues in Asia and the West continue to remain healthy. Furthermore, the impact is likely to be felt on shipping freight rates as more cargoes head west leading to tighter availability of vessels.

4. California commission adopts annual power demand forecast update

What's happening? The California Energy Commission has approved Jan. 25 the California Energy Demand Forecast Update for 2022-2035. While the forecast is updated annually, this update cycle was more ambitious with the greatest uncertainty revolving around the state's decarbonization strategies. The annual forecast is used in various energy planning proceedings by the California Public Utilities Commission and the California Independent System Operator.

What's next? California electricity consumption is expected to climb 26% by 2035 with sales forecast to grow 18%. The forecast includes 10-year annual consumption forecasts for electricity and gas, annual peak electric system load with different weather variants, and annual projections of load impacts from the addition of battery storage, electric vehicles, and energy efficiency and electrification standards and program impacts. California has a goal of 100% carbon-free electricity by 2045, with the governor pushing for accelerated interim goals, including 90% clean electricity by 2035.

5. India to release wheat from government stocks

What's happening? Indian domestic wheat prices had risen over 35% to Rs 31,500/mt ($386.40/mt) due to continued tight supply over the past several months. Domestic supply has tightened as the harvest shrunk due to severe heat waves and higher export demand amid the Russia-Ukraine war.

What's next? The Food Corporation of India will release 3 million mt wheat from government inventories to rein in rising domestic prices. The government expects the release of wheat inventories in the open market at reduced prices over the next two months is likely to check soaring wheat and flour prices. India is expecting a bumper crop harvest in MY 2023-24. As of Jan. 20, wheat acreage at 34.1 million hectares, against 34 million mt in the previous year, data from the agriculture ministry showed. Market participants expect that a likely increase in output will push India to lift the ban on wheat exports imposed in May 2022, though export volumes remain uncertain.

Reporting and analysis by Sabrina Kernbichler, Eric Yep, Kenneth Foo, Kassia Micek, Pankaj Rao, Samar Niazi, Sampad Nandy, Vivien Tang