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Commodity Tracker: 5 charts to watch this week

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Commodity Tracker: 5 charts to watch this week

Commodity Tracker: 5 charts to watch this week

European renewable output could be bolstered by solar additions this summer, while the global problem of gas flaring comes to the fore. Also in this week's tracker: steel and raw materials trends in the US and Europe, and S Korean naphtha imports.

1. Europe's thermal generation recovery hides renewables upside

EU wind and solar vs fossil fuel generation 2019 vs 2021

What's happening? European wind power generation in April ended a five-month decline in a year-on-year comparison after exceptionally strong wind speeds last winter. The comparative lull in wind this year has combined with cold temperatures and reviving economic activity to boost fossil-fired generation, with gas plants in particular stepping up to fill the "thermal gap". Exclude 2020 and the demand destruction from coronavirus lockdowns, and a more familiar picture is revealed, with renewables volatile but generally up, and thermal generation down when mapped against 2019, the S&P Global Platts aggregated data show.

What's next? European solar is set to play a bigger role this summer with capacity additions strong through 2020 and into 2021. On May 4 combined European solar generation hit a new record of 156 GW. Germany alone saw peaks above 60 GW, pushing hourly price below zero. Solar peaks in Europe tend to occur at midday in the spring, when temperatures are cooler and the sun's angle is optimal, maximizing PV panel efficiency. New tracking systems are being deployed on solar modules to extend these peaks into more lucrative early evening hours, improving solar output by up to 20% according to Sheffield University research.

2. Pressure intensifies to reduce gas flaring worldwide

global gas flaring volumes

What's happening? The volume of gas flared globally in 2020 fell by 5.2% to 142 Bcm, according to the latest data from the World Bank, as oil production dropped by 8%. The majority of flared gas is associated gas from oil operations, with Russia the biggest flaring country followed by Iraq, Iran, and the US. Flared gas creates an estimated 280 million mt/year of CO2 emissions.

What's happening? There are concerns that the drop in flared gas volumes last year was a one-off, and that volumes could rebound in 2021 as oil production recovers. There are growing calls for concerted action to help end flaring. Flaring solutions company Capterio estimates that more than half of flared gas volumes are located within 20 km of an existing gas pipeline and can be relatively easily monetized to the benefit of the asset operator and the environment.

3. American steel production nears full recovery amid strong GDP performance…

US steel output by region 2020 2021

What's happening? US steel production has nearly recovered to pre-COVID levels and is a key component of the US economic recovery. Data from the American Iron and Steel Institute (AISI) shows the country's steel production has recovered to around 77% capability utilization and 1.8 million st of weekly production as of the last week of February, approaching year-ago levels of around 2 million st of weekly production and 82% capability utilization. The recovery has varied by region however, as production in the Southeast region, which is predominantly through Electric Arc Furnace (EAF) technology, has moved almost fully to prior-year levels. Other regions with more blast furnace production such as in the Great Lakes and the Midwest, remain approximately 9-10% down on prior year levels.

What's next? US GDP growth was most recently reported at 6.4%, annualized in Q1, and that performance is seen accelerating in Q2 and Q3. Having said that, a scaling back in domestic auto production activities due to the global semiconductor chip shortage would incrementally temper steel demand, though there remains support for continuing increases in steel production.

4. … and European steel hot-rolled coil margins improve as offers pushed up

European steel hot rolled coil vs raw materials spread widens

What's happening? European hot-rolled coil steel spot prices surged in April, outpacing rising iron ore costs as steel industry margins continued to improve. Platts HRC ex-works Ruhr reached Eur1,000/mt on April 30, up 18% from the month prior. The Northwest European HRC-steel raw materials spread increased to Eur632/mt ($759/mt) in April, from Eur477/mt in March, as steel prices continued to climb above iron ore, ferrous scrap and coking coal costs, according to S&P Global Platts estimates on May 4. The spread moved up from a low of Eur193/mt in June 2020.

What's next? Global HRC spot prices remain strong at record levels across regions, and steel mills including ArcelorMittal continued to push up steel offers for new orders and contract supplies in April and May. Steel companies expect to yield higher realized prices in Q2 and in the second half of 2021, as earlier lower-priced steel bookings are increasingly replaced by higher-priced new sales, which bodes well for steel margins.

5. S Korea naphtha demand soars on polypropylene, medical device needs

South Korean naphtha demand soars on medical equipment manufacturing needs

What's happening? South Korea's demand for polypropylene and polyethylene, essential for making general medical devices including mask filters, plastic disposable syringes and hypodermic needles, as well as protective medical suits and gear, jumped by more than 34% in the first quarter on the year, according to Seoul-based downstream market analysts.

What's next? With many East Asian countries kicking off coronavirus vaccination programs in late Q1, South Korean medical device manufacturers are running their plants at full capacity for both domestic distribution and export. This has opened the door for the country to import more petrochemical feedstock naphtha. South Korea's biggest petrochemical maker, Hanwha Total, has completed a four-year project to boost its polypropylene production capacity. The country is expected to import an average of at least 19 million barrels/month of naphtha through Q2 and Q3, compared with the average 18 million barrels/month imported in 2020 and the 18.84 million barrels/month average in 2019, according to South Korean petrochemical feedstock traders surveyed by S&P Global Platts.

Reporting and analysis by Andreas Franke, Stuart Elliott, Wendy Schallom, Hector Forster, Philip Vahn