Commodity Tracker: 5 charts to watch this week

The European Union's gas market correction mechanism taking effect Feb. 15 and the state of the Turkish scrap market following the Feb. 6 earthquakes are in focus this week. Also in the spotlight are updates on recycled plastics feedstock in Southeast Asia, what's ahead for China's crude steel production, and the planned worker strikes in France and Great Britain.

1. EU's market correction mechanism takes effect Feb. 15

What's happening? The EU's new gas market correction mechanism(opens in a new tab) is due to come into effect Feb. 15 after EU energy ministers agreed to implement the new tool in late December. The mechanism will be triggered if the TTF month-ahead gas price exceeds Eur180/MWh for three working days and the month-ahead TTF price is Eur35/MWh higher than an LNG reference price at the same time. The mechanism was designed to prevent the price spikes from last August that saw the TTF month-ahead price reach almost Eur320/MWh.

What's next? Gas in Europe is currently trading well below the cap level of Eur180/MWh, while LNG prices for European delivery have also converged with hub prices since the start of 2023. This suggests it is unlikely that the mechanism will be triggered any time soon. Nonetheless, exchange operator ICE has announced plans to launch a new TTF market outside of the EU in London Feb. 20 as an "insurance" for traders if the EU mechanism looks like it might be triggered.

2. Earthquakes end Turkish scrap uptrend on near-term concerns

What's happening? Turkish scrap imports ground to a halt immediately after the Feb. 6 earthquakes in southeastern Turkey. The market has since stayed muted(opens in a new tab), abruptly ending the price uptrend seen in the previous two weeks. Normal operations at the steel mills in the impacted region have been suspended. No new scrap trades into Turkey in the days following the earthquakes were reported, even in the north and western regions of Turkey, which were not hit by the earthquake. At the same time, the three months scrap forward curves for Turkish scrap were volatile, reflecting the uncertain outlook.

What's next? The earthquake destruction created much uncertainty about the near-term price direction for the Turkish imported scrap as well as domestic and export steel prices. The market is waiting to see how soon Turkish mills in the affected region can resume regular operations(opens in a new tab), which requires the Iskenderun port(opens in a new tab), and other infrastructure to be fit for purpose again. Natural gas supply to the mills also needs to be restored. The reports so far said that the bulk terminal at Iskenderun port and local steel mills were spared from serious damage, suggesting that the scrap import and steel production can resume soon.

3. Supply tightness in Southeast Asia's recycled feedstock market lingers

What's happening? Singapore is the latest Southeast Asian country to announce legislation to discourage the use of single-use plastic bags(opens in a new tab), as it tabled a bill Feb. 6 mandating a minimum 5 cent/bag charge at major supermarkets. The move follows similar measures in Thailand, Indonesia and Malaysia that imposed either a pollution charge or an outright ban on single-use bags as authorities looked to tackle region's the mounting plastic waste issue. Recycled polyethylene prices have been on an uptrend since December due to tight feedstock supply.

What's next? Traders expect the move to lower the availability of post-consumer waste, compounding existing tightness in the regional recycled feedstock market and hampering the trade of recycled films. As feedstock flows become more geographically penned in by growing calls for circularity, the tension between pro-sustainability legislation by regional governments and the needs of a burgeoning recycling industry will be a key issue moving forward.

4. China's crude steel production to ease further in 2023

What's happening? Chinese crude steel production is holding steady in February despite negative mill margins and tepid downstream demand. Analysts at S&P Global Commodity Insights estimated January crude steel production at 78 million mt, the same as December and see February production almost the same at 79 million mt.

What's next? Chinese steel mills are hoping for improved demand once the weather starts to warm up and they anticipate positive economic stimulus measures to be announced at the Chinese government's annual meeting in March. This should translate into additional demand for steel, although S&P Global analysts think property construction will be weak again this year, with consumption down around 6% on year. S&P Global analysts forecast that China's crude steel production(opens in a new tab) will fall by 1.1% on year to around 1 billion mt in 2023, down 11.3 million mt from last year.

5. French, British power worker strikes unlikely to move markets much

What's happening? French nuclear output is set to reach a new peak for this winter with the year-on-year shortfall almost eliminated as more reactors return from long-term outages. A series of 24-hour strikes, however, may impact daily production as well as French utility EDF's maintenance schedule, with a fifth generator worker walkout(opens in a new tab) set for Feb. 16. A similar, if much smaller threat to supply in the interconnected Great Britain market is on the horizon if workers at the 3.9-GW Drax thermal plant in North Yorkshire strike as planned across nine days in February, March and April.

What's next? Unions tend to overstate the impact of scheduled strikes on power plants, and these latest walkouts look no different. In Britain, the Unite union said strikes at Drax, which accounts for around 7% of domestic production, could lead to power cuts, an assertion rejected by Drax(opens in a new tab) management. In France, analysts at S&P Global forecast year-on-year increases in average French nuclear output in the coming weeks, with strikes posing only a modest risk to France's export volumes, which have been picking up recently, notably to Britain.

Reporting and analysis by Stuart Elliot, Wojciech Laskowski, Joon Lei Lee, Heng Hui, Paul Bartholomew, Andreas Franke.