Commodity Tracker: 4 charts to watch this week

S&P Global Commodity Insights editors are watching LNG prices across Asia and Europe, the threat of an El Niño weather phenomenon on crops, and the lack of buying activity in the steel market.

1. LNG prices fall in Asia...

What's happening? Fears of an LNG supply glut, deferment of procurement activity by price sensitive South Asian buyers, and milder than expected temperatures in some parts of Asia are keeping LNG prices subdued. A further weakness in Asian LNG spot prices, which have already plunged around 60% on year, is set to trigger expectations of a cut in US flows to Asia, until demand recovers.

What's next? A large buildup in LNG vessel and regasification capacity could keep spot tanker rates low in 2023, providing an opportunity for floating LNG storage by late summer. Analysts at S&P Global Commodity Insights said recently that a TTF winter-over-summer spread of around $5.43/MMBtu could incentivize a strong buildup in LNG floating storage. Assuming a one-year term charter rate of around $130,000/d for a dual fuel diesel electric powered LNG vessel, they estimated an LNG trader could capture a roughly 75 cent/MMBtu spread on an August-loaded, November-delivered cargo. Further coal to gas switching will likely be prompted by falling LNG prices this summer.

2. ... while prompt prices fail to drive increased injection in Europe

What's happening? Weak demand, high storage fill and robust LNG deliveries to Europe have depressed prompt prices and supported the emergence of a historically wide TTF day-ahead/winter-ahead spread that reflects spare storage capacity "scarcity". However, this has failed to incentivize increased injections, suggesting the current spread may not be ideal for arbitrage for many market players or some may be waiting for further prompt price weakness. Similarly, recent maintenance-related supply curtailments at the Norwegian Continental Shelf have further impacted Northwest Europe fill rates.

What's next? NCS maintenance is set to decline with exports to Europe set to rise, supporting higher injections and cumulative European storage reaching the EU's mandated fill level ahead of schedule. S&P Global analysts expect NWE industrial demand to recover by just 1.5% in 2023, but the recovery is under pressure with a weak near-term economic outlook.

3. Australia's wheat output, exports seen dipping amid El Niño threat

What's happening? The Australian Bureau of Agricultural and Resource Economics, or ABARES, had projected the country's wheat production to decline 33.9% on year to 26.2 million mt in marketing year 2023-24 (October-September). This comes amid threats of the El Niño weather phenomenon emerging across the equatorial Pacific Ocean this year.

What's next? The Australian Bureau of Meteorology has forecast a 70% chance of an El Niño in 2023. This weather phenomenon is detrimental to Australian crops, as it leads to extensive dryness and poor rainfall across the country. The anticipated drop in output is also likely to weigh on Australia's wheat shipments. ABARES had projected Australia to export around 21 million mt wheat in MY 2023-24, down 29% year on year, in its Agricultural Commodities report.

Related content: Agriculture Weather Watch: Chances of El Nino in 2023 seen at 70%, may impact crop output

4.US hot-rolled coil prices fall 20% since May

What's happening? US Midwest hot-rolled coil prices rose by 60% over January to April, but have fallen by 20% since the start of May. Prices have continued to drop this month due to buying inactivity and negative sentiment regarding the market outlook. Mills have been lowering their offer prices in a bid to attract customers. The HRC price averaged $1,086/short ton ex-Indiana mill in May, lower than S&P Global analysts' expectation of $1,120/st.

What's next? Stronger domestic supply is being bolstered by competitive Asian imports into the US. S&P Global analysts expect Asian steel prices to soften further in Q3, which will enable mills to lower their offers to the US. Steel market activity typically slows during the hotter months, while macroeconomic factors such as rising interest rates continue to stymie demand. While mills report decent pockets of demand coming from the auto sector, manufacturing data shows ongoing demand weakness, which could weigh on steel prices in the second half of the year.

Reporting and analysis by Surabhi Sahu, Tom Purdie, Sampad Nandy, Crystal Hao