Commodity Tracker: 5 charts to watch this week

This week, our editors keep their eyes on key developments in commodity markets, including freight rates across different markets, US gasoline prices, as well as the impact of natural gas prices on fertilizer costs.

1. Coastal shift in US, freight rate drop add to container market uncertainty

What's happening? Container shipping rates for North American imports have plummeted since the start of the year as consumer demand remains weak and import volumes wane. The coastal shift, where shippers diverted cargo from North America's West Coast to the Gulf and East Coasts to alleviate congestion issues during the 2021 container shipping bull market, appears to have remained in place, resulting in a wider freight spread between the discharge regions.

What's next? Some market participants said the outlook for supply and demand finding a balance(opens in a new tab) in the next two years is bleak. Sources are concerned about the additional vessel capacity coming on to the market amid demand uncertainty. Market participants cite consumer sentiment, the Russian-Ukraine war and inflation as driving factors behind an uncertain market.

2. Lower pump prices not yet helping boost US gasoline demand

What's happening? US gasoline demand has yet to recover to pre-pandemic levels and impairment to the 2017-19 average has again widened in the preliminary October and November data despite lower pump prices, still rising employment and constructive trends on disposable income. Retail pump prices are now estimated to have fallen to $3.50/gal or lower. The latest weekly demand number as reported by the Energy Information Administration indicated continuing impairment, though marginally better, on the week.

What's next? The drivers of gasoline demand are not looking all that constructive over the next few months. Disposable income may be plateauing and could weaken due to building recessionary impacts in the US. Similarly, year-on-year employment growth has slowed and could contract in the coming months. Lastly, the rise in electric vehicle sales is very slowly undermining organic demand growth over the medium term. It appears US gasoline demand peaked at 9.5-9.6 million b/d pre-pandemic during times during 2016-2019 and, given the factors outlined, even lower gasoline prices would not foster its full recovery.

3. Rapid influx of relet ships expected to accelerate plummeting day rates

What's happening? A rapid influx of relet ships – a result of further restart delays at Freeport LNG(opens in a new tab) in the US and colder temperatures in Europe – saw floating cargoes discharge, increasing the availability of ships in the spot market. Relet ships aggressively drop their offer rates in order to secure coverage for their limited availability dates, leading to day rates falling over $200,000 across all carrier sizes in the last two weeks.

What's next? Market participants have reported that day rates will continue to freefall as there isn't much demand for pre-Christmas ships with most cargoes for December already covered, so rates will keep falling as long as demand stays muted amid reports that most December cargoes in the market have been covered. Market participants indicate greater interest for the cargoes available in the second half of January 2023 and for securing long-term charters in the period market and amid reports that the winter market is done for the year.

4. European renewable guarantees of origin pulling off from recent all-time highs

What's happening? Prices for Nordic hydro and EU renewables Guarantees of Origins, or the premium electricity consumers are willing to pay to prove the electricity bought is from a renewable source, have sharply declined, after surging over the past months. Much of the rise this year had been due to hydropower shortage following a summer of drought in Europe. At the same time, the momentum behind corporate procurement of renewable electricity continues to grow, as demand for GOs is up over 10% year-on-year so far this year.

What's next? A recovery in hydro output is already underway in Europe. Norway sees reduced risks of security of supply issues this winter, which is leading to higher power flows to the continent. Hydro conditions in France and Switzerland have also been improving. S&P Global Commodity Insights expects the rebound in hydro generation to be more pronounced in 2023, bringing the GO market in balance.

5. Europe's natural gas supply to steer fertilizers, food prices

What's happening? Disruption to Russian natural gas flows into the EU hit the bloc's fertilizer production capacity, bringing European fertilizer production to just 20-30% of total capacity. This, along with other supply disruptions, has pushed global fertilizer prices higher. The prices of all commonly-used fertilizers have shot up to historical highs at a time when agriculture prices are already elevated due to a myriad of issues including weather and war.

What's next? As Europe heads into its winter months, demand for natural gas(opens in a new tab) is likely to see stiffening competition from domestic heating and power supply industry. How much natural gas can be diverted to fertilizer production would be an important factor. Any rise in fertilizer costs is likely to reflect on the prices of grains and oilseeds, while reduced use of fertilizers could impact crop output, adding to supply tightness and raising food prices.

Reporting and analyses by Laura Aebi, Alan Struth, Ibi Akinnola, Bruno Brunetti, Shikha Singh