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Commodity Tracker: 6 charts to watch this week

Aluminum Symposium by S&P Global Commodity Insights

Mergers and acquisitions activity in the chemical sector declines due to higher interest rates and challenging operational conditions. S&P Global Commodity Insights editors are keeping an eye on the demand for aluminum due to the metal’s role in energy transitions. Meanwhile, due to the robust economic growth, India emerged as the largest petcoke importer in 2023.

1. Chemicals M&A ends down year on a higher note

What’s happening? Mergers and acquisitions activity in the chemicals sector declined year on year in 2023, with 264 transactions announced valued at a total of about $70 billion, according to data compiled by Chemical Week by S&P Global. Although relatively small, the decline reflected higher interest rates, as well as a difficult operating environment for the industry, with global chemical output increasing just 0.3% in 2023, according to industry trade group American Chemistry Council.

What’s next? The number of deals announced in Q4 totaled 73 — an increase from 55 deals announced in Q3. Interest rates have stabilized, and S&P Global Market Intelligence forecasts 75 basis points rate cuts in the second half of this year, which should expand buyers’ appetites. Major producers including Shell PLC, PPG Industries Inc. and International Flavors & Fragrances Inc. are mulling asset sales, which could also signal an uptick.

2. China’s national voluntary carbon market starts trading

What’s happening? China’s national voluntary carbon market — China Certified Emission Reduction — kicked off trading in Beijing on Jan. 22. The trade volume of CCERs totaled 375,315 mtCO2e and the average trading price was Yuan 63.51/mtCO2e ($8.92/mtCO2e) on the opening day. Even before the national trading platform was launched, the CCER scheme has already been existing for over a decade. The registration of projects was put on hold in 2017, while some old CCERs, issued from projects registered before 2017, have been traded via several provincial carbon exchanges. For instance, Beijing Green Exchange saw trading prices in the $6-$15/mtCO2e range in 2023. The Beijing exchange also hosts the national CCER trading platform.

What’s next? The Chinese government has released four methodologies for CCER issuance, including forestation, mangrove cultivation, solar thermal power and grid-connected offshore wind power projects. As it takes time for CCER projects to be registered and for credits to be issued, the credits currently trading via the national platform are also old credits issued from projects registered before 2017. Project approvals and new CCERs are expected to be delivered to the market within the year. Meanwhile, more methodologies are likely to be approved to support a variety of decarbonization activities. While this market is currently open only to domestic companies, the Chinese government said that it will upgrade the registration and trading platforms to enable international transactions in the long term.

3. Europe’s electric car sales grow lead over diesel as oil demand shrinks

What’s happening? Battery-electric cars consolidated their market position as the second most popular choice for buyers in 2023, with the share of diesel- and gasoline-powered vehicle sales shrinking below 50% of the market, according to the European Automobile Manufacturers Association, or ACEA. European sales of fully-electric cars, or BEVs, averaged 16% of total car sales in the region last year, above diesel cars’ share of 12% and below gasoline-powered cars. which made up 36% of total sales, the ACEA said. Diesel car sales saw their market lose the most growth in 2023, from 15% to 12%, while gasoline cars slipped just 1 percentage point to 36% of total sales, according to the data.

What’s next? While sales of full-battery electric passenger vehicles in Europe overtook diesel-powered cars for the first time in the first half of 2023, diesel is expected to remain the fuel of choice for harder-to-electrify heavy transport for years to come due to the energy density limitations of batteries. Road transport is responsible for more than 40% of global oil demand and diesel demand in Western Europe’s transport sector is expected to average 4.25 million b/d this year. S&P Global Commodity Insights estimates that diesel and gasoil demand in Western Europe’s transport sector peaked at around 4.4 million b/d in 2018 and is forecast to fall to 2.79 million b/d by 2040, reflecting the region’s shift to electric mobility. By 2030, S&P Global expects the global EV fleet to displace some 3.3 million b/d of gasoline and diesel fuel, up from around 385,000 b/d in 2022.

4. OPEC sees demand for its crude well above current output in 2024, 2025

What’s happening? OPEC expects demand for its crude to grow in 2024 and 2025, and remain well above current production, it said in its monthly oil market report released Jan. 17. OPEC estimates the call on its crude at 28.49 million b/d for 2024 and 28.96 million b/d for 2025, above output of 26.7 million b/d in December 2023, according to secondary sources used by the organization to monitor production. OPEC’s forecasts are based on strong economic indicators for the next two years, which it sees as resilient to political and geopolitical factors. In early 2024 there has been an increase in attacks on oil supply infrastructure in the Middle East and the Ukraine conflict zone. On Nov. 30, 2023, some OPEC+ countries agreed a total of 2.2 million b/d of voluntary cuts in the first quarter of 2024. So far, these cuts have had a muted impact on prices. Platts, part of S&P Global, assessed Dated Brent at $82.16/b Jan. 22, below the assessment of $82.28/b on Nov. 29 — the day before the latest cuts were announced.

What’s next? OPEC+ is next due to meet in Vienna June 1, but the group could meet earlier if market conditions require any adjustments to production policy. If OPEC’s forecasts prove accurate, the group would be in a strong position to influence prices later this year. A key factor to watch will be the growth of non-OPEC production. OPEC expects non-OPEC liquids production to grow by 1.34 million b/d in 2024 and 1.27 million b/d in 2025, with the US, Canada, Guyana and Brazil leading the gains. Other factors that could affect supply include attacks on oil infrastructure in the Middle East and the Ukraine conflict zone as well as worse than expected economic data.

5. Low-carbon demand in focus as green premiums find footing

What’s happening? With the high costs associated with the move to cleaner production, how much customers are willing to pay extra for greener material is in focus. Building on the success of its European low-carbon aluminum indexes, Platts, on Jan. 2, launched a new daily LCAP price assessment for the US market, using the same 4 mt maximum C02 emissions. US-LCAP covers direct and indirect emissions associated with aluminum smelting, typically considered by market participants as scope 1 and 2 emissions.

What’s next? Demand for aluminum is set to rise in the coming decades due to the metal’s role in energy transition technologies. Consumers are placing a sharper focus on supply chain sustainability, spurred by in-house sustainability targets, federal incentives and larger global efforts to decarbonize. Supply in the US is challenged, with only five aluminum smelters remaining in operation.

Further reading: Post-consumer scrap taking larger role in supply for green demand

Aluminum Symposium by S&P Global Commodity Insights

6. India’s petcoke imports may strengthen further in 2024 while China’s downturn may continue

What’s happening? India reclaimed the top spot as the world’s largest petcoke importer in 2023 on the back of a robust economic growth, while China saw its import drop significantly amid a downturn in the country’s real estate industry. India’s petcoke imports increased 10.7% year on year to 12 million mt in 2023, while China’s imports slumped 17% to 9.4 million mt.

What’s next? China’s economy is expected to grow at a slower pace while its real estate crisis is far from over. On the other hand, India’s construction activities will carry forward the momentum into 2024 and may witness an uptick in consumption compared to 2023. Imported petcoke prices may stay rangebound but buyers will cautiously assess the risks from the ongoing Red Sea crisis.

Research and analysis by Vincent Valk, Ivy Yin, Robert Perkins, Rosemary Griffin, Justine Coyne, Vaibhav Chakraborty

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