Commodity Tracker: 6 charts to watch this week

Continuing the theme of strong commodity prices in early 2021, this week's Tracker considers spikes and rallies across several products: rhodium, styrene and ethanol. Meanwhile, China shows enthusiasm for a new crude grade from Iraq; Japanese utilities stock up on LNG and Europe runs down its gas in storage.

1. Supply-constrained rhodium to potentially see more upside after all-time high

What's happening? Rhodium base prices have surged above $25,000/oz for the first time. The precious metal has been on multiyear bull run, rising forty-fold since mid Aug 2016 when it stood at $625/oz. The latest rally was caused by supply shortages from South Africa, which accounts for around 80% of global rhodium mine supply; an existing deficit; and strong buying from China and Europe due to stricter auto emissions regulation. Nearly 80% of demand for rhodium comes from the global automotive industry, for catalytic converters to control emissions of greenhouse gases and pollutants.

What's next? Rhodium is a by-product of platinum group metal mining, and there is talk of projects in the sector that have been abandoned or cancelled, such as Stillwater-Sibanye's K4 project, coming back into play. However, market sources say mining restarts and new projects can take years to reach full production. Given the volatility of rhodium prices, analyst have suggested the increase in prices to continue in 2021.

2. Styrene monomer has record on-day rise as production issues, other factors strike

What's happening? Styrene monomer, a key feedstock for end-uses such as packaging, white goods and automotive parts, spiked significantly in Europe, taking prices far above levels seen prior to the coronavirus pandemic that drove prices to all-time highs. A force majeure Feb. 12 at the Maasvlakte styrene production facility in the Netherlands compounded supply tightness seen since early-2021, as tank inventories emptied and imports to Europe suffered from delays. The price increase has affected both upstream and downstream, with benzene and polystyrene prices climbing in response to the February price hike.

What's next? While the Maasvlakte plant has restarted, a cocktail of factors seems set to keep supplies short for the coming months. Severe sub-freezing weather hit the US, taking offline a considerable tonnage of styrene production, with an unclear recovery schedule in place. Upcoming planned outages in both Europe and Asia will take more production capability offline following unexpected disruptions.

3. Brazil Center-South hydrous ethanol in parabolic price phase

What's happening? Brazil Center-South hydrous ethanol is experiencing a parabolic price phase, jumping to a record high of Real 3,350/cu m on Feb. 25. For 2021 so far, the price is up 35%. A bullish industry report, dry weather in the Center-South and favorable economics over gasoline have led to fears of an ethanol supply shortage, causing the price spike. Consumers with flex-fuel vehicles can use either gasoline, which includes 27.5% anhydrous ethanol, or hydrous ethanol (E100). Consumers generally fill their tanks with E100 only when its price is 70% or less than that of gasoline, because of hydrous ethanol's lower energy content. Any changes in the ex-refinery price of gasoline can alter this delicate price balance.

What's next? The market's ongoing upward price movement will reach a level that effectively stymies demand for ethanol until the start of 2021-22 harvest in early April, a Sao Paolo-based trader told Platts. The 2021-22 sugarcane harvest will bring sufficient amounts of hydrous ethanol online to satisfy demand, but there are approximately 7 weeks from now until the start of the harvest.

4. China embraces new Iraqi crude oil grade

What's happening? In January, Iraq's State Oil Marketing Organization introduced the new Basrah Medium grade, splitting Basrah Light into two grades to support the stability of its crude export streams. "The Asia market [has] the priority in our allocation—it is a market that every single producer is targeting and we are doing the same," SOMO's deputy director general Ali al-Shatari said in a recent interview with S&P Global Platts.

What next? China is poised to receive about 21 million barrels of Basrah Medium by mid March. With a gravity of around 27.9 API and sulfur content of 3%—as well as a competitive price—the grade has attracted plenty of buying interest among refiners in the country. SOMO set the official selling price for Basrah Medium crude loading in March at a discount of 15 cent/b to the average of Platts Dubai and Platts Oman crude assessments in the month of loading. Amid volatile refining margins, pricing will be a driving factor in refiners' choice of crude feedstocks, and usually new crude will need to be priced at a discount to attract buyers, said JY Lim, oil markets adviser at S&P Global Platts Analytics.

5. Japanese demand for LNG at risk, as stocks return above normal

What's happening? Japanese electric utilities have restocked their LNG inventories. On Feb. 13 inventories were slightly below year ago levels, but higher than normal for this time of year. This is a drastic improvement from the low levels reached during January, as stock levels more than doubled over the span of just one month. The increase observed over the last few weeks is higher than any other month on month inventory build over the last ten years.

What's next? Japanese power demand will decline into the spring. We expect the country's thermal gap to drop by 13 GW from February to March, and an even larger decline into the month of April, as nuclear and solar generation increases. With domestic LNG inventories at higher than normal levels, near term demand for LNG will likely be impacted.

6. Europe's heavy gas stock drawdown suggests summer price upside

What's happening? EU gas storage sites are now less than 38% full after a strong drawdown of stocks through February as Europe battled extremely cold temperatures. Despite having started the withdrawal season in October with its storage facilities almost 100% full, Europe has seen its stocks emptied at rates not seen since the Beast from the East weather event in 2018. In Germany, storage sites met almost two thirds of consumption during some peak demand days in February.

What's next? Barring any more cold weather, the EU's stocks should retain a relatively healthy buffer as Europe exits winter. However, in order to build storage levels back up, there will need to be strong buying over the summer injection season, which is likely to offer some support to European gas prices. That would be in stark contrast to 2020, when Europe ended the storage withdrawal season with healthy stocks after a mild winter, which coupled with the demand impact from the coronavirus pandemic led to a summer collapse in European gas prices.

Reporting and analysis by Filip Warwick, Callum Colford, Phillip Herring, Philip Vahn, Daisy Xu, Oceana Zhou, Andre Lambine, Bruno Brunetti, Stuart Elliott