Commodity Tracker: 5 charts to watch this week

Eyes remain glued on developments in the Russia-Ukraine war and its impact across commodities, particularly gas flows into Europe. Seasonal trends as markets enter the second quarter of the year are also being observed in dry bulk cargoes and freight rates.

1. US LNG exports unable to solve Europe's gas supply woes

What's happening? US LNG feedgas demand ran at all-time monthly high of 12.8 Bcf/d in March, up from the previous monthly high of 12.5 Bcf/d in January, as new liquefaction capacity had been quickly assumed to meet the international market's needs. While US LNG exports are limited by gas liquefaction capacity, more cargoes left bound for Europe, which has taken more than 70% of US exports since January, as price premiums have incentivized supply away from the Asia-Pacific region.

What's next? US LNG export facilities are expected to run at or near full capacity in summer 2022, or April-October, under the assumption that export facilities will prioritize run rates, with European markets looking to phase out current energy imports from Russia. S&P Global Commodity Insights forecasts LNG feedgas demand will average 12.6 Bcf/d from April-October, up from 1.9 BCf/d in the same period in 2021.

2. Clean tankers cool off after Russia sanctions drive rates to 2-year high…

What's happening? Clean tankers rates across Asia-Pacific, reeling under downward pressure for more than a year, got a fresh lease of life when the conflict between Russia and Ukraine escalated into a full-blown war. The sanctions on Russia that followed forced jittery buyers to look for alternative sources of oil products to avoid any complications on payments or maritime insurance coverage. This pushed up freight to its highest levels in two years and pulled depressed earnings from the red.

Further reading: Clean tankers quarterly: Russia to dominate market outlook moving forward

What's next? As the war prolongs, uncertainty remains over when and under what terms and conditions it will end. This could prompt some buyers to keep buying oil products from the Black Sea and Baltic region, helping freight to cool off marginally. Rates are now off highs but with dark war clouds still looming over the horizon, the upside potential is intact.

3. … while larger Capesize vessels steeply discounted to Supramax and Panamax vessels

What's happening? Charterers are increasingly fixing larger ships to move smaller parcels as the hire costs for smaller Supramax and Handysize ships prove more expensive than Capesize ones.

What's next? Continuation of this trend would rebalance the market with the larger vessel sizes getting to be at parity if not higher than the smaller ones. Q2 is also the seasonally strong period for the Capesizes as iron ore majors in Brazil and Western Australia are expected to increase their production and exports over the second quarter as most of their maintenance schedules are completed and weather-related disruptions are largely expected to be minimal.

4. India's coal-fired power generation reaches new record for March

What's happening? Warm weather has increased power demand in India, resulting in record high use of coal-fired power generation. S&P Global estimates that output from coal power plants averaged 143 aGW for March, which is an increase of 4.5 aGW on the year and a new all-time high for any month. The previous record was reached in April 2021 with 139 aGW. Coal-fired power generation could have been even higher but was kept in check by higher-than-normal output from hydro power.

What's next? S&P Global expects year on year power demand to increase also for Q2 2022. The thermal gap will be impacted by the monsoon season, which will boost power generation from renewables as usual when it starts sometime in May. Still, coal-fired power generation should increase by around 5 aGW on the year to 127 aGW.

5. Metallurgical coal enters Q2 in bear territory

What's happening? The seaborne metallurgical coal market saw continued great volatility entering Q2, with prices falling sharply from historic record highs made in Q1. Demand-rationing has been observed in a high-price environment, while the supply expectation continues to improve for Q2 onwards cargos.

What's next? All eyes will continue to be on the development of Russia-Ukraine war and impact on energy markets, thermal coal in particular, which may influence the met coal market direction. Also, market participants will watch closely China's control over COVID-19 outbreak for clues of Chinese demand for seaborne materials for Q2.

Further reading: S&P Global Commodity Insights Metals Trade Review