Commodity Tracker: 5 charts to watch this week

A selloff in Atlantic Panamax markets, widening TTF and LNG prices and Britain's power exporting capability are in focus this week. Our editors also examine Chinese power demand expectations and Australian wheat crop quality concerns.

1. Bearish demand triggers selloff in Atlantic Panamax markets

What's happening? Sustained weakness in the Atlantic Panamax and Kamsarmax freight markets over week 43 saw rates suffer in both fronthaul and trans-Atlantic routes, amid retreating ship demand from charterers at key loading ports. Platts assessed the 60,000 mt Santos, Brazil, to Qingdao, China, Panamax grain run at $44.25/mt, down almost 12% on the day to mark the lowest freight rate levels since Sept. 6 and approach the recent bottom of $43/mt observed Sept. 2-5.

What's next? Atlantic Panamax markets could find some support as they approach the September lows, but participant views have been divergent about fourth-quarter performance expectations, with many pointing to an absence of cargoes to bolster ship demand. Still, hints of rising demand for Brazil soybeans on the CFR China market for February and March 2023 loadings could fuel some optimism for early 2023.

2. EU gas price control proposals approach crunch decision time

What's happening? The joint purchasing of at least 13.5 Bcm gas by EU member states is on course for agreement at the November EU Council, EC Energy Commissioner Kadri Simson said Oct. 25, noting "strong support" from ministers attending the latest council meeting in Brussels. Also under discussion is a dynamic price cap on Dutch TTF gas hub transactions, seen by the Commission as no longer deserving of benchmark status given Europe's increasingly LNG-dependent market. The idea is to develop a complementary new benchmark reflecting global LNG price movements.

What's next? European regulatory body ACER had been tasked with delivering plans for a new complementary EU gas benchmark by March 31, 2023, in time for the next gas storage filling season, while securities authority ESMA had been tasked with developing circuit breakers for intraday derivatives trading. The gas sector warns against interventions, preferring short-term demand reduction efforts and even windfall taxes. What the EC and several member states see, however, is the recent gap between TTF and LNG prices, prompting suspicion that Europe's gas benchmark may not be as optimal as supposed.

3. Britain's competitive advantage boosts autumnal power exports ahead of Dec test

What's happening? Britain has been net exporting electricity to EU markets over the summer and through October as continental European premiums were sustained by poor nuclear and hydropower availability. The trend has lasted longer than normal due to GB's cheaper cost of gas versus markets more dependent on Russian supplies, with the UK NBP gas price falling to a steep discount to Europe's TTF gas benchmark. On Oct. 26-27, meanwhile, record high wind output saw Britain exporting power to Norway, Belgium and the Netherlands as well as to France, with only Ireland cheaper in NW European markets.

What's next? GB power flows could reverse to import mode over the coming weeks if and when the current mild, wet and windy conditions are replaced by still, cold conditions. A number of French nuclear reactors are due back online through November and, while strikes have delayed the schedule somewhat, S&P Global Commodity Insights is forecasting net imports into Britain to average at a record 5.6 GW from December through to March 2023. "While we expect GB to be able to pull on EU power imports from December, we acknowledge the potentially extreme upside price risk in the event that Britain needs to play tug-of-war for power with its neighbors," said Glenn Rickson, head of European power analysis at S&P Global. This was particularly the case as system operator National Grid has said it regards Demand Control actions as a last resort even if they are cheaper than interconnector buyback actions, Rickson said.

4. Chinese power demand could grow 4%-5% for Q4, but likely lower for 2023

What's happening? China's power demand for September was on average 985 GW, an increase of 2% year on year. However, some of the year-on-year growth can be attributed to lower-than-normal demand in September 2021 when the country experienced rolling blackouts in some areas due to a lack of coal.

What's next? On Oct. 25, China Electricity Council published a new forecast for the fourth quarter, where it expected demand to rise 4%-5% year on year. Power demand grew 5% on the year for the first nine months of 2022. However, if China did not have a major heat wave this summer, S&P Global Commodity Insights estimates power demand would only have grown by about 3%. For 2023, S&P Global expects power demand to grow only 3.4%. Much depends on the country's zero COVID-19 policy and economic development in general.

5. Wet weather threatens Australia's bumper wheat crop quality

What's happening? Australia's near-record wheat crop of 34 million mt could ease supply fears amid uncertainty over the Black Sea grains deal extending after Nov. 19. However, excessive wet conditions threaten quality concerns. Persistent rain has stoked concerns that the bulk of the production will be standard wheat or feed wheat, rather than higher protein grades or milling wheat. Heavy showers usually lead to a decline in the protein content of the crop.

What's next? With the prospect of wheat exports from Ukraine becoming slim, buyers are likely to turn to Australian supplies, sources said. The US Department of Agriculture scaled up its projection for Australia's wheat exports in marketing year 2022-23 to 26 million mt in October, up from 24 million mt seen six months ago. However, quality concerns over the Australian crop may channel significant volumes of lower quality wheat in the animal feed industry replacing corn, according to market sources.

Reporting and analyses by Nikolaos Aidinis-Antonopoulos, Stuart Elliott, Henry Edwardes-Evans, Andreas Franke, Andre Lambine, Elizabeth Thang and Sampad Nandy