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Commodity Tracker: 5 charts to watch this week

Commodity Tracker: 4 charts to watch this week

A hike in rhodium prices, South Korean nuclear availability and European power prices are all in the mix in this week's selection of trends to watch in energy and raw materials markets.

1. Will supply-constrained rhodium see more upside after all-time high?

 

Rhodium price 2019 2020

What’s happening? After a period of lower prices in the first and second quarter of 2020 as lockdowns and low automotive production weighed on demand, the rhodium market once again picked up the bullish streak seen early this year. The base price climbed to an all-time high of $14,500/oz on September 16, before falling back in the following days.

What’s next? The latest rally was caused by anticipated supply shortages from South Africa, which accounts for around 80% of global rhodium mine supply, strong buying ahead of the seasonally strong Q4-Q1 period, and optimism stemming from a recovery in Chinese vehicle sales. Nearly 80% of demand for rhodium comes from the global automotive industry, for catalytic converters to control emissions of greenhouse gases and pollutants. China sales growth turned positive in May, supported by dealer and government incentives, but uncertainty over electricity supply from troubled South African utility Eskom is adding to the supply concerns. Given the volatility of rhodium prices, a new high should not be ruled out, though a quick decline is also possible.

 

2. S. Korea’s typhoon-shuttered nuclear to underpin thermal generation

 

South Korea nuclear generation

What’s happening? Two typhoons hit South Korea in less than a week and shut down six nuclear reactors. The first typhoon, Maysak, hit South Korea on September 3 and four nuclear reactors were shut in the Kori nuclear complex. The second typhoon, Haishen, hit on September 7 and led to the outage of two additional reactors, this time at the Wolsong nuclear complex, losing a combined capacity of 1.4 GW.

What’s next? The outages have led to the temporary loss of a 5.3 GW of nuclear capacity. With plenty of spare capacity, generation from thermal fuels is set to pick up and replace the decline in nuclear generation. S&P Global Platts Analytics estimates that demand for both coal and gas will increase, with about 3 GW more coal-fired generation and the remainder from gas. For every week the units are offline, Platts Analytics assumes South Korea will need to buy another cargo of LNG.

 

3. European wind volatility drives hourly prices up to Eur800/MWh

 

European power price volatility

What’s happening? European wind generation plunged September 15, sending spot power prices to 2020 highs. Reduced nuclear availability saw a scramble for back-up capacity, with intra-day prices spiking in Germany, France, and the UK. National Grid was forced to issue a UK capacity notice warning of tight margins, and was seen buying power on interconnectors inside and outside of the Balancing Mechanism, before and after gate closure, causing system prices to rise over GBP600/MWh in the evening peak.

What’s next? Europe's wind fleet, at over 200 GW installed, has graduated from enfant terrible status to fully-fledged monster. Feast can become famine in hours, pulling prices from negative territory up to the hundreds of euros per MWh as weather systems change. Last week’s daily low saw the fleet average under 15 GW September 15 versus 40 GW for the preceding week, a relatively low-wind period. COVID-19 demand fluctuations have already inflated UK balancing costs this year. The growing need to constrain wind looks set to put added pressure on network management in Q4, presenting lucrative earnings for the small, flexible gas engines that have done so well out of the UK’s Capacity Mechanism.

 

4. Norway’s Equinor aims for bigger share of Asian pie

 

Norway oil exports to China

What's happening? North Sea crude oil suppliers are confident Asia's firm base requirements will keep their exports to the Far East at healthy levels, despite the region's volatile product margins and fragile fuel demand during the coronavirus pandemic, industry executives told S&P Global Platts at the 36th Asia Pacific Petroleum Virtual Conference in Singapore over September 14-16. Norway's state-controlled Equinor, for one, is boosting its presence in the Asian oil market, having doubled crude sales to the region.

What next? Despite the coronavirus pandemic, Equinor has seized the opportunity to grab as much market share as possible amid ongoing output cuts by OPEC+. Chinese exports of Norwegian crude rose to 7.96 million mt over January-July, compared with just 119,000 mt a year earlier. Equinor has also extended its crude oil storage contract with the Korea National Oil Corporation, to store approximately 5 million barrels of oil at KNOC's Yeosu storage tanks for marketing purposes in Northeast Asia. It is crucial for Asian refiners to have the flexibility to respond quickly to the volatile markets by adjusting refinery operations and crude slate, said JY Lim, oil markets adviser at S&P Global Platts Analytics, especially as OPEC+ started to trim back on production cuts.

Reporting by Filip Warwick, Andre Lambine, Henry Edwardes-Evans, Andreas Franke, Oceana Zhou, Takeo Kumagai