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Commodity Tracker: 5 charts to watch this week

  • Featuring
  • S&P Global Commodity Insights
  • Commodity
  • Natural Gas Oil Metals Petrochemicals
  • Topic
  • War in Ukraine

Get a quick look at expectations on China's iron ore and steel markets for the next quarter, as well as the impact of the continuing Russia-Ukraine war in the rebar-scrap market. Our editors in the US are watching gasoline prices, and oil and gas business sentiment, while polyethylene trade is in focus in Asia.

1. Ukraine conflict sparking jump in Chinese steel exports

What's happening? China has been lifting its exports of finished and semi-finished steel in March as buyers in Europe, the Middle East and in other parts of Asia have been unable to source material from Ukraine and Russia due to the conflict. Some Chinese mills have noted their export volumes reached close to 500,000 mt in the first week of March.

What's next? A majority of respondents in S&P Global Commodity Insights' Q2 survey said they expected the conflict to result in higher Chinese steel exports. March orders indicate a big jump in exports over April-May, and the stronger overseas demand could help offset tepid domestic steel demand, and keep prices well supported.

2. ... while Turkish export rebar-import scrap spread widens

Turkish rebar

What's happening? The Turkish export rebar-import scrap spread has widened to a record high, with Turkish sellers achieving higher export rebar prices to Europe. Turkey received an increased quota, following the redistribution of quotas taken away from Russia and Belarus. European rebar buyers seem to be able to afford to pay the 25% duty if a quota is exhausted, as Turkish rebar is still cheaper than domestic rebar. Turkish mills have also seen strong steel billet export demand following cancellations and delays for CIS-origin material due to the Ukraine invasion.

What's next? It's expected that Turkish mills will have to pay more for scrap once they return to buy, with substantial May shipment cargoes required to fulfil their recent finished and semi-finished steel exports. Shortages of basic pig iron from the Black Sea make ferrous scrap the main alternative for mills. The Turkish rebar-scrap spread might narrow slightly, though, if scrap prices catch up with recent increases in rebar prices.

3. California could foreshadow gasoline demand decline in entire US

Oil demand and mobility in California and US

What's happening? In Q4 2021, the US West Coast saw a decline in gasoline demand which was more pronounced than the entire country. This coincided with regular unleaded gasoline prices in the area reaching $4/gal. In the latest reporting week, the EIA indicated regular gasoline retail prices in California of $5.70/gal while the US averaged $4.24/gal. Over the last month, as price increases accelerated, California mobility was more tempered relative to the overall US. Weekday mobility is more inflexible than weekend mobility because a larger component is comprised of driving to work.

What's next? With California gasoline prices being so much higher than the rest of the country, it may be a leading indicator of what could ultimately be seen in the rest of the US with regards to demand impairment. As prices rise to ever more elevated levels, price elasticity is not seen as behaving linearly and demand losses grow disproportionately. Demand losses are estimated be about 35,000 b/d in a low elasticity sensitivity case, to around 300,000 b/d in a high elasticity sensitivity case. This demand loss would be mostly felt in discretionary driving and be reflected in weekend mobility data. If weekend mobility data declines, losses in gasoline demand would begin to mirror that which had already been observed in the West Coast and specifically California.

4. US oil, gas activity index signals growth in major basins

Henry Hub price expectation

What's happening? Oil and gas industry executives responding to the Federal Reserve Bank of Dallas' Energy Survey in March reported a broad expansion in business activity from Q4 2021 to Q1 2022 with increases in production, capital expenditures, employment and overall operating costs. Nearly 52% of respondents reported an increase in oil production in Q1 along with 47% reporting an increase in natural gas production. Less than 7% of survey respondents reported a decrease during the quarter.

What's next? The overall rise in oil and gas business sentiment in Q1 mirrors activity in the field and could be an indicator of what's to come in some of the largest shale basins across the Dallas Fed's Eleventh District – most notably the Permian. In the West Texas-New Mexico play, rig counts, new well drilling and completions are edging back toward pre-pandemic levels in late March, just as production tests new record highs at over 14 Bcf/d. According to a recent forecast published by S&P Global, Permian production could grow by close to 2 Bcf/d by year-end 2022.

5. Asia polyethylene prices reacts to high oil prices

Asia polyethylene prices at record highs in March 2022

What's happening? Demand in Asia was weak, and some traders preferred to buy polyethylene on a hand-to-mouth basis in the local market, given market uncertainties. In South Asia, HDPE film prices are at a record high due to limited supply in the international market. Meanwhile, domestic shortage in India on the back of a shutdown of a major PE producing plant due to feedstock issues has been pushing prices higher in the region.

What's next? Traders expect plant operations in Asia to be reduced due to a lack of Russian naphtha and higher crude costs. Cracker operators are facing high costs and cannot offer lower despite weak demand, traders said. Participants in South Asian region are waiting for fresh offers for May, which they expect to be higher. An upcoming maintenance turnaround in India, a key PE-producing region in South Asia, is also likely to keep the sentiment bullish. Chinese traders were exporting domestic and imported material to Southeast Asia, due to weak domestic demand amid coronavirus-led lockdowns and high inventories. Other sellers were holding high offers, expecting demand to rebound after the lockdowns ease.

Analysis and reporting by Paul Bartholomew, Jacqueline Holman, Robert Eisen, J Robinson, Heng Hui, Ashna Mishra