Commodity Tracker: 5 charts to watch this week

The hydropower generation outlook across the US Pacific Northwest remains below normal due to dry weather. S&P Global Commodity Insights editors also are keeping an eye on Asian styrene monomer margins. Meanwhile, China’s soybean imports are seeing a decline ahead of the Lunar New Year holidays.

1. Weaker hydropower outlook pulling down US power forwards
What’s happening? Drier, warmer weather has led to below-normal snowpack, and is causing hydropower generation outlook across the US Pacific Northwest to trend below normal. A poor snowpack means less water available in the warmer months when it is most needed. The drought declaration issued July 2023 is still in effect in Washington state. Washington recorded its third warmest December in 2023.

What’s next? The water supply forecast at The Dalles Dam, which serves as the barometer for hydro conditions in the region, is currently at 79% of normal for the April-September forecast period. The weak forecast is driving up power forwards. Mid-C on-peak June has averaged about $70.25/MWh, 129% above the average of the previous five years’ packages, according to data from Platts, a part of S&P Global Commodity Insights.

2. Styrene margins in Asia expected to remain tight
What’s happening? Producer cash margins for Asian styrene monomer reached a 1.5-year low at minus $127.34/mt Feb. 5, weighed down by firmer feedstock benzene, coupled with sluggish downstream SM prices amid oversupply. Benzene prices have remained strong amid short supply in China and persistent volatility in upstream costs. Inventory levels were heard to be dropping, with benzene inventories in East China last heard at around 53,000 mt in the week ended Jan. 31, compared to 70,000 mt the previous week. Prices for SM derivative products were heard to be pressured by ample supply in the region due to China’s rapid expansions in production capacities in 2023.

What’s new? Market expectations suggest that the margin squeeze would persist in coming months. For SM derivatives, the anticipated capacity expansions in China this year may increase domestic demand, yet the existing ample supplies heard in downstream markets, might lead to controlled operating rates, causing lower-than-expected demand in SM.

3. US RINs complex collapses year on year in January, driven by oversupplied biomass-based diesel market
What’s happening? Platts assessed current-year D4 biomass-based diesel Renewable Identification Number (RINs) at 51.50 cents/RIN Jan. 29, the lowest level since May 6, 2020. US production capacity of renewable diesel overtook US biodiesel production capacity for the first time in 2023, according to the US Energy Information Administration, leading to a significant increase in RINs generated as renewable diesel creates 13.33% more credits per gallon blended than traditional biodiesel. Meanwhile, the feedstock soybean oil and BO-HO spread hit multi-year lows, prompting blenders to ramp up production and a rise in RIN generation.

What’s next? Growth in the renewable diesel market is expected to continue outpacing the biodiesel market in 2024. Favorable blending economics for biomass-based diesel producers should continue in the near-term helped by a lower BO-HO spread driven by Middle East geopolitical concerns causing higher energy prices and improving weather in South America with an expected large 2024 soybean crop.

4. Soybeans CFR China M1 cash premium hits parity on Brazil harvest pressure, 2 months earlier than 2023
What’s happening? Soybeans CFR North China basis slipped into negative territory for the first time in 2024, two months earlier than in 2023, as sellers discounted to stoke demand from Chinese crushers ahead of the Lunar New Year holidays. Lackluster demand before a festive period combined with bumper crop in Brazil triggered an earlier negative basis. SOYBEX CFR China price assessments saw a decline in flat price to $442.21/mt Feb. 2 from $540.13/mt Dec. 18, 2023, S&P Global data showed.

What’s next? Besides Brazil’s bumper crop, Argentina is also expecting double positive the harvest in 2023 due to favorable weather at 52.5 million mt, according to the Buenos Aires Grains Exchange Jan. 26. In the longer term, China grapples with lower population numbers, signaling lower demand for soybean needed to produce soybean meal and oil. The government’s mandate for lower protein in animal feed composition at 13% alongside promoting domestic farming of corn and soybeans could result in lower import reliance and physical delivery volumes in the upcoming months.

5. Supply, sorting top of mind as US aluminum scrap demand set to expand
What’s happening? Secondary aluminum production is expanding in North America, bringing greater demand for recycled materials. At the same time, as automotive production shifts more toward electric vehicles, the types of scrap being generated and sought by customers are changing.

What’s next? As rolling mills have put in more recycling capability, taking more of the traditional scrap that came into the secondary market–primarily used beverage cans and clean sheet–it is leading metals recyclers to look further down the scrap chain to recover metals from more contaminated scrap. Additionally, as the types of vehicles and products produced with aluminum change, certain grades of scrap are being favored due to buyers seeking more low-iron, high-purity grades, leading to increased demand for wheel scrap. Platts, part of S&P Global, in December launched a new daily price assessment for the US aluminum wheels scrap market, in response to the increasing demand.
Source: Platts