Commodity Tracker: 4 charts to watch this week

This week’s Commodity Tracker reports rising grid-tied battery storage in the US, increased demand in Europe for LNG imports, falling soybean oil premiums and constraints on global supplies of critical metals.

1. ERCOT recorded leading planned US battery storage capacity expansions in Q4

ERCOT recorded leading planned US battery storage capacity expansions in the fourth quarter

What’s happening? Total grid-tied battery storage capacity in the continental US nearly doubled year over year through the end of the third quarter, up 97% to 9,559 GW. The California independent system operator continues to lead in battery storage capacity, up 86.2% year over year to 4,938 GW by the end of the third quarter.

What’s next? The US is expected to add about 1.4 GW of battery storage capacity in the fourth quarter. Planned additions for this quarter are shifting to the Electric Reliability Council of Texas, or ERCOT for short, with a planned 425 MW, or 32% of the total. The Western Electricity Coordinating Council had 382.5 MW planned for Q4, or 29% of all Q4 additions, while the California Independent System Operator had 382.5 MW planned, 29% of the total.

2. Colder weather drives US LNG shipments to Europe

Colder weather boosts US LNG shipments to Europe

What’s happening? Colder weather has set in across Europe, boosting LNG demand. In Asia, high gas inventories have been reported at utilities in Japan and South Korea, and consumption in China has been subdued due to its zero-COVID-19 policy, which has reduced industrial activity. Against this backdrop, about 72% of all US LNG shipments delivered in November ended up in Europe, according to data from S&P Global Commodity Insights.

What’s next? LNG delivered to Northwest Europe is seen across the forward curve in 2023 at a premium to JKM, the benchmark price for spot LNG in Northeast Asia, according to market participants. This suggests that there will continue to be incentives for shipments to Europe. European gas stocks are already declining, suggesting that a sharp and prolonged drop in winter temperatures would also favor Europe as a destination for US LNG cargoes in the near term.

3. Latin American soybean oil premiums are under pressure from increasing supply from Argentina

Latin American soybean oil premiums are being pressured by increasing supply from Argentina

What’s happening? Soybean oil premiums in South American markets have fallen, pressured by a change in Argentina’s exchange rate policy that has prompted increased selling. Aiming to increase central bank reserves and boost shipments, on November 28, Buenos Aires introduced a new version of the “soybean dollar” program, allowing exporters to sell their sales at 230 pesos/$1, or 40% over were able to liquidate at the official rate. From November 28th to 30th, more than 1 million tons of soybeans were sold or marketed in Argentina. The FOB Up River and FOB Paranaguá base levels for the January debit were priced at minus 12.50 cents/lb for Chicago Board of Trade futures on December 1st, 17 cents and 16.70 cents/lb respectively lower than on December 1st previous year, according to Platts data.

What’s next? Market participants will likely be watching how shipments of soybean oil from Argentina, the world’s largest exporter of the commodity, perform in the coming months following support from the “soybean dollar” program. The product from Argentina and Brazil continues to compete against rising sunflower oil exports from Ukraine and cheaper Asian palm oil supplies.

4. The global push towards net-zero emissions could lead to critical metal supply shortages

Development of lithium prices

What’s happening? If you assess how much aluminum, copper and lithium are available globally and how much production could grow compared to what it would take to reach net-zero emissions by 2050, “you can see very quickly that there are limitations Michael Widmer, commodities strategist at Bank of America, said during a media roundtable looking ahead to 2023. Rising electricity prices in Europe and to a lesser extent the US have pushed up operating costs for metals producers. For example, at an aluminum price of $2,400/mt, the smelters have operating costs in excess of $8,000/mt, according to Widmer’s presentation.

What’s next? Scaling lithium supply poses a challenge, as supply would need to increase by a factor of 10 in less than 10 years to meet expected demand, he said. By 2027 or 2028, every single utility project would need to come online in time, with the volumes promised, to keep the market out of deficit, which is possible but challenging, he said.

Reporting and analysis by Kassia Micek, Harry Weber, Jose Roberto Gomez, Samyak Pandey, Jared Anderson

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