Commodity Tracker: 5 charts to watch this week

This week, a recovery in South Korea's jet fuel demand forms our top story for Commodity Tracker. S&P Global editors also focus on strong Chinese copper TCs/RCs heading into Q3, expectations of El Nino for Australia and bearish trends for Asian carbon prices.

1. South Korea jet fuel demand rises in May amid air travel recovery

What's happening? The number of travelers to Japan are rising sharply amid a weak Japanese yen. In South Korea, outbound passengers in May from Incheon International Airport came in at 2.2 million, over a four-fold jump from a year earlier. The yen/won exchange rate was at 8.9599 July 4, the lowest level since 8.9284 on June 23, 2015, data from Bank of Korea showed. Meanwhile, the FOB Singapore jet fuel/kerosene crack spread against front month cash Dubai was assessed at an average of $15.01/b in June, up $1.46/b from May. The crack spread averages $15.42/b to date in July.

What's next? Monthly outbound passengers could surpass 2.5 million during Q3, according to sources at major South Korean travel agencies. The strong recovery in South Korea's jet fuel demand would pressure domestic refiners to regularly assess their product yields and linear programming models to fully capture robust aviation fuel sales. High-tech manufacturing and construction sectors are still struggling, keeping industrial fuel demand and sales weak. However, the aviation sector appeared to be the bright spot in terms of transportation fuel sales heading into the holiday season, refinery and middle distillate trading sources said.

2. China's copper concentrate TC/RCs to firm on weak demand

What's happening? A rally in Q2 took spot copper concentrate treatment and refining charges past the $90/mt level. As Chinese smelters entered a period of maintenance and deliveries of delayed cargoes due to supply disruptions in Q1, most smelters found themselves sitting on high inventories, which curbed buying interest. Spot transacted volumes of clean copper concentrates were largely stable in April-May but plummeted in June on weak buying interest.

What's next? Chinese copper TC/RCs are expected to maintain an uptrend heading into Q3 as buying interest remains tepid amid high stock levels for smelters. First shipment from Chile's Quebrada Blanca Phase II -- a major contributor of supply growth in 2023 -- is expected around July-August, which could add further pressure in Q3. Developments are also awaited at Indonesia's Grasberg operations, which has halted exports since mid-June after its export permit expired.

Read more: Metals Trade Review

3. Likely El Niño seen hitting wheat crop in Australia, helping yields in Argentina

What's happening? El Nino conditions have emerged over tropical Pacific Ocean, which may lead to a rise in temperatures and poor showers across regions. The phenomenon may affect production patterns of various crops, while keeping the global output largely steady. The World Meteorological Organization said July 4 there is a 90% probability of El Nino continuing throughout the second half of 2023, and is expected to be at least of moderate strength.

What's next? The phenomenon is likely to lead to a fall in agricultural yields in Australia and Southeast Asia, while it may boost crop productivity in some parts of South America. The Australian Bureau of Agricultural and Resource Economics has projected the country's wheat production to decline 33.9% on the year to 26.2 million mt in marketing year 2023-24 (October-September). Argentina is expected to harvest 19.5 million mt in MY 2023-24 (December-November), up 55.4% on the year, the US Department of Agriculture said.

Read more: Agriculture Weather Watch

4. Asia carbon prices sink to 2023 lows in H1

What's happening? Carbon prices in Asia ended the first half of 2023 at year-to-date lows across markets, signaling weakness, dominated by policy concerns and oversupplied units. While the Australian market was plagued by low demand, New Zealand and South Korean markets were bogged down with policy uncertainty. As of July 7, the New Zealand Unit, generic Australian carbon credit unit, and Korean Allowance Unit prices stood at NZ$38/mtCO2e ($23.47/mtCO2e), A$26.75/mtCO2e ($17.81/mtCO2e) and Won 10,500/mtCO2e ($8.04/mtCO2e), respectively. This represented a fall of 43%, 27% and 19%, respectively, since Platts launched its assessments on March 1.

What's next? While the generic ACCU price is expected to find a floor at around A$26/mtCO2e, NZU and KAU prices are expected to remain bearish in H2 due to lack of policy certainty and government support, according to market sources.

5. Dry bulk freight falls, weakness likely to extend into Q3

What's happening? Dry bulk freight rates dropped during Q2. The Platts KMAX9 Index, a global ton-mile weighted average of nine Panamax routes, averaged $11,598/d over Q2, significantly lower from $25,525/d across the same period in 2022, and the Platts APSI 5 Index, a ton-mile weighted average index of five Supramax routes within the Asia-Pacific, was at $9,580/d over Q2, a huge decline from $25,814/d over Q2 2022.

What's next? Global macroeconomic weakness is likely to pressure the dry bulk freight market during Q3, and extend lower returns witnessed in the previous quarter due to China's sluggish economic recovery and weak commodity demand. As a result, expectations for shipping demand during the current quarter, which historically has seen demand perk up for coal, iron ore and grains have been lowered. Meanwhile, there has been no dearth of vessel supply as there has been little to no congestion at most ports across the globe.

Reporting by Philip Vahn, Jesline Tang, Sampad Nandy, Samyak Pandey, Kshitiz Goliya, Shriram Sivaramakrishnan