Commodity Tracker: 5 charts to watch this week

Eyes are back on European gas and power markets as winter approaches. Market participants remain vigilant despite healthy storage levels in the region. Meanwhile, LNG deals between Japan and Qatar may be on the horizon following the visit of Qatar's energy minister. In metals, steel and raw material prices are in focus.

1. Europe gas, power markets on edge ahead of winter

What's happening? Gas and power demand in Europe is forecast for a year-on-year increase for the first time since the energy crisis rattled markets through 2022, though risks remain and prices are still relatively high despite almost full gas storage and higher French nuclear availability.

What's next? Temperatures and wind will play a key role in the run-up to the start of the winter heating season. Europe will also still need to attract LNG to offset lost Russian imports, although S&P Global Commodity Insights forecasts Q4 LNG imports to be 9% lower year-on-year. Europe also faces competition for LNG cargoes from Asia, where spot prices are now higher with the Platts JKM having moved to a premium over the Dutch TTF price. Elsewhere, UK carbon prices have plunged to a discount to the EU price, while UK power has regained its premium over France, S&P Global data show. Supply and demand fundamentals remain tightly balanced and any disruption to gas supply could trigger higher risk premiums stretching into summer and next winter.

Related infographic: European gas, power demand set for first gains since crisis

2. Japanese companies may be on the verge of signing Qatari LNG deals, observers say

What's happening? Japan's 2022 imports of Qatari LNG plummeted 67.9% on the year to 2.88 million mt. Last year, Qatari LNG accounted for just 4% of Japan's imports, from 12.1% in 2021, according to Ministry of Finance data. Over January-August, Japan's Qatari LNG imports were down 6.8% on the year to 2.02 million mt, accounting for 4.6% of the total imports during the eight-month period.

What's next? Meetings between senior officials of Japanese companies and Qatar's Minister of State for Energy Affairs Saad al-Kaabi, who recently visited Japan, point to possible LNG deals, observers and sources said. The meetings signal an improvement in the situation after Japanese companies in 2021 allowed a total of more than 7 million mt/year of Qatargas 1 LNG offtakes to expire, amid disagreements over contractual flexibility as well as uncertainty over Japan's future LNG demand due to its 2050 net-zero target. QatarEnergy LNG, formerly known as Qatargas, is at the center of the country's LNG expansion plans. Qatar is raising its LNG production capacity from 77 million mt/year currently to 126 million mt/year by 2027.

3. US, second-tier Australia coking coal prices weaker relative to Premium HCC FOB

What's happening? US East Coast and second-tier coking coal prices have weakened relative to the benchmark premium low-volatile hard coking coal from Australia in September, as demand for these coals remained largely supported by contract trade. India-led restocking demand for coking coal with blending targets with domestic and import coals contributed to price increases last month for high CSR premium coals. There was limited global demand for other grades at similar price increases. This led spreads to widen, as buyers chased limited offers for October-loading spot cargoes in premium brands ahead of November requirements. Lower CSR coking coals have seen stable contract-led shipments, limiting spot availability, with some high-vol A and US premium HCC marketed at higher levels, while taking into account freight costs to compete with Australian coals in Asia.

What's next? US and Australian second-tier low-vol HCC prices remain historically weak at just below an 82% relativity to PLV. Lower relative pricing could support demand for alternatives, and lead to changes in coke blends and new trials, further limiting spot tonnage as markets rebalance. US high-vol HCC markets see sales mainly through long-term contracts, with buyer performance limiting spot availability. High quality brands are indicated as sold out in export and North American markets, with less interest in US high-vols on Russian availability at lower prices in some markets. Weaker Atlantic region steel markets have not spurred regular spot inquiries in US high-vol coals. High-vol A prices reflect trade interest for higher CSR coals, adjusted for quality. Asian markets continued to see freight adjustments for FOB to be competitive on delivered terms.

4. Europe HRC steel-raw materials spreads narrows, pressured by lower steel prices

What's happening? European hot-rolled coil steel and raw materials spreads narrowed in September to the lowest level in three years, as steel prices weakened and raw materials costs rebounded. Weaker margins as steel prices looked increasingly unable to cover overall costs led to production adjustments. Platts HRC prices averaged Eur638.33/mt ex-works Ruhr in September, down 0.75% from August and the weakest since November 2022. Iron ore and coking coal prices delivered to Rotterdam increased last month, as European ferrous scrap rose, adding to steel making costs. Pig iron costs have turned up, with scrap prices also supported by export demand.

What's next? European HRC-raw materials spread may need to find support as steel markets adjust to orders and demand and consider carbon emissions compliance. Raw materials supply may see seasonal constraints, with talk of weaker steel industry demand in China as emissions controls and output targets become closely reviewed over the next few months. Steel supply in Europe and blast furnace capacity and output will be keenly tracked with demand and any changes to inflation. This will increase a focus on regional energy market supply and pricing in the near term, as a broader economic gauge.

5. CEC issuances dive in 2023, adequate to cover 33% of phase one of projected CORSIA demand

What's happening? Since 2018, there has been a remarkable upswing in the issuance of CORSIA-eligible credits, with an extraordinary surge of over 1,500% to reach 20.8 million mtCO2e in 2022 compared to 2018. The peak of CEC issuances was seen in 2021 at more than 21 million credits. However, the upward trajectory met a halt in 2023, primarily attributed to a decline in the issuance of industrial pollutant credits, accounting for 34% of CEC issued in 2023. Between January-July 2023, 5.2 million CEC have been issued, in stark contrast to the 15 million credits issued during the same months last year.

What's next? S&P Global's analysis of available CECs from major registries with a vintage falling within 2016-2020 – the requirement for the pilot phase of CORSIA – shows a total of 44 million mtCO2e ready for purchase, with an additional 11 million mt yet to be potentially issued from eligible projects. This volume could cover 37% of the first-phase demand, if the ICAO Council extends the existing post-2016 vintage eligibility criteria to the initial CORSIA phase and approves units from Verra, Gold Standard, ACR and CAR. As CORSIA membership expands, 125 countries are expected to participate in the program by 2024, covering 76% of projected international aviation emissions. Moreover, CORSIA is projected to encompass more than 120 million mtCO2e at the outset of the mandatory phase.

Related content: Future Energy Outlooks Special Report

Reporting and analysis by Andreas Franke, Takeo Kumagai, Hector Forster, Abhijeet Thakkar, Dana Agrotti