Commodity Tracker: 5 charts to watch this week

The impact of weather-related factors on commodities is top of mind among editors and analysts at S&P Global Commodity Insights this week. Severe weather conditions in China are slowing down activities at the country's ports, while the snowmelt in the US is being monitored for its effect on hydro conditions in the Pacific Northwest. In South and Southeast Asia, the summer heat is firing up LNG prices.

1. Container markets soar amid port congestion, adverse weather, equipment shortages

What's happening? Congestion at major transshipment ports in Asia has caused container spot rates to rise following severe weather in China. Platts Container Rate 13 was assessed May 2 at $4,200/FEU, up 31.25% since the start of the year, while Platts Container Rate 5 stood at $5,250/FEU, up 38.62%. Platts is part of S&P Global Commodity Insights. With the tender season being extended into early May, despite proceedings for long-term contracts normally concluding in March-April, sources said there has been an uptick in demand on the spot market. Moreover, high vessel utilization out of Asia has led to container equipment shortages and a lack of capacity on ships, giving carriers initiative to push general rate increases, which has been absorbed by the market on Asia-Europe shipments.

What's next? If port conditions worsen, container shipping from Asia into the US and Europe could face additional delays, causing a rise in freight-all-kind rates. Key liner companies may also be required to introduce new vessels in to trade loops to combat delays and supplementary issues. Several market participants are reporting bookings being rolled due to the lack of space at ports, which is set to further impact the container markets in the near term as the supply-demand dynamic tightens.

2. EU lowers ceiling for next Hydrogen Bank auction, but clearing price could rise

What's happening? The EU's European Hydrogen Bank auction cleared at 37-48 euro cent/kg on April 30, well below the ceiling price of Eur4.50/kg, providing funding for 1.5 GW of electrolysis. The EU will provide Eur720 million to the seven successful projects, which will produce 1.58 million mt of green hydrogen over 10 years. The unexpectedly low clearing price demonstrates offtakers' willingness to pay a "green premium."

What's next? Auction winners are due to sign contracts by November, with projects to start no later than end-2029. A second round of auction, with a budget of Eur2.2 billion, is expected to launch in the autumn, with a lower price ceiling of Eur3.50/kg. The bulk of the first-round bids came in below Eur2.50/kg, but industry group Hydrogen Europe warned that winning bids did not represent the whole market, given the limited budget.

3. Pacific Northwest hydro outlook remains below normal

What's happening? There has been a delay in snowmelt across most of the Columbia River Basin, leading to expectations that the bulk of snowpack melting will occur in June. The water supply forecast at The Dalles Dam is currently at 80% of normal for the April-September forecast period, down 10 percentage points year on year, according to Northwest River Forecast Center data. Conditions at The Dalles, on the Columbia River on the Oregon-Washington state border, serve as the barometer for hydro conditions in the region.

What's next? The Climate Prediction Center's seasonal outlook indicates greater probability for above-normal temperatures for May through July with below-normal to equal chances to above- and below-normal precipitation. Despite the weaker hydro outlook, Western power forwards continue to trend lower on a strong hydro outlook in neighboring areas and lower gas forwards. Mid-C on-peak June is currently in the mid-$30s/MWh, 30% below its 2023 counterpart, while July is in the upper $80s/MWh, 19% lower, according to Platts data.

4. Russia's removal of thermal coal export duties could lure Asian buyers

What's happening? Russia has temporarily removed tariffs on thermal coal and anthracite exports, with effect from May 1 to Aug. 31, providing relief to the country's suppliers, whose operations have been marred with several challenges including higher duties, sanctions, logistical and other issues. Russia exported only 38.5 million mt of thermal coal over January to April, down from 44.1 million mt in the same months in 2023. Cheaper alternatives coming out of South Africa, Colombia and Australia have eaten up Russia's market share in Asia.

What's next? The tariff removal is expected to bode well for Russian suppliers. It could allow them to price their material at a competitive level and regain some of the market share they have lost in recent months. Consequently, South African, Colombian and Australian suppliers may be forced to lower their offerings in the near term to compete with the Russian thermal coal prices.

5. Intense heat in South, Southeast Asia boosts LNG prices

What's happening? An earlier-than-expected surge in summer temperatures is pushing up power demand and consumption of generation fuels across South and Southeast Asian countries, supporting market sentiment for spot LNG in the region. Countries such as India, Bangladesh, Thailand, Philippines and Vietnam are experiencing heat waves that have disrupted daily life, forced regulators to issue warnings of power outages and sent power utilities scrambling to shore up emergency fuel supplies. Some regions are setting new records for extreme weather for this time of the year such as Myanmar, where some areas crossed maximum temperatures of 48 degrees Celsius, according to local media. LNG prices, which were drifting lower on high inventories in the first quarter, have crossed the $10/MMbtu level at the start of May.

What's next? The impact of hot weather is expected to be stronger this time around, said S&P Global Power Analyst Andre Lambine, driving both coal and gas-fired power generation higher, while the wet season is still a few weeks away. The higher power demand has seen some countries step up inflows of spot LNG cargoes and market participants expect hot summer conditions to spread further east in the coming weeks -- and get more intense before it subsides -- setting a floor on LNG prices and market sentiment in general.

Reporting and analysis by Mohammed Al-Ansare, James Burgess, Kassia Micek, Vaibhav Chakraborty, Eric Yep