By Ulf Bergman
Macro/Geopolitics
As widely expected, the US economy bounced back in the third quarter following a contraction in the preceding three months. The 2.6 per cent quarter-on-quarter growth was marginally stronger than the consensus projection of 2.4 per cent. Much of the recovery was driven by an expansion for the export industry. At the same time, growth in consumer spending, which accounts for more than two-thirds of the US economic activity, slowed. The stronger-than-expected data saw the US dollar claw back some of its recent losses, providing some headwinds for the commodities markets.
On the other side of the Atlantic, the European Central Bank raised interest rates by 75 basis points in line with the prevailing expectations. The continent’s monetary tightening lags behind the one of the US, but with high energy prices being the primary culprit for the European inflation rates rather than economic overheating. Hence, the ECB is likely to remain a bit more cautious in the near future than its American counterpart.
Commodity Markets
An improved demand outlook amid rising US crude oil exports saw Brent crude oil futures continuing to gain ground during yesterday’s trading session. The contracts closed 1.3 per cent higher than on Wednesday, just shy of 97 dollars per barrel. However, the positive momentum has not carried into today’s trading, with the futures retreating by around half of a per cent.
European natural gas futures gained ground on Thursday as the uncertainty surrounding the European Union’s attempts to control prices mounted. The front-month contracts gained 2.9 per cent and settled above 107 euros per megawatt-hour. The futures have also continued to gain in today’s session and are trading nearly six per cent above yesterday’s close.
Thermal coal continued to lose ground during Thursday’s trading session amid an easing global supply situation. The Newcastle futures for delivery in November retreated by 0.6 per cent to settle at 372 dollars per tonne. The contracts for delivery in North-West Europe also declined and ended yesterday’s session at 240 dollars per tonne, following a daily loss of two per cent.
Iron ore futures remained on their recent downward trajectory yesterday amid increasing concerns over the outlook for steel demand. The November contracts trading on the Singapore Exchange ended Thursday’s session at 81.71 dollars per tonne, the lowest since November last year, following a daily drop of 5.6 per cent. The contracts have also continued their slide today, with prices dropping below 80 dollars per tonne following a loss of more than two per cent.
After a solid session on Wednesday, the base metals gave up some of the gains yesterday amid rising risk aversion among investors. The copper futures trading at the London Metal Exchange retreated by 0.4 per cent, while the aluminium contracts shed two per cent. For zinc, the losses were modest at 0.2 per cent, while the nickel futures retreated by 1.3 per cent.
Grains and oilseeds only recorded marginal moves during Thursday’s trading session. The wheat futures trading in Chicago edged down by 0.2 per cent, while the corn contracts shed 0.4 per cent. The soybean futures remained broadly unchanged.
Freight Markets
The seaborne dry bulk freight market had another weak day, with the Baltic Exchange’s indices in the red. The headline Baltic Dry Index extended its run of negative daily moves to a seventh consecutive session with a loss of 5.5 per cent. With the sub-index dropping by 7.3 per cent amid a continued weak order situation, the Capesizes led the way south. The Panamaxes also saw their spot rates dropping, with their Baltic indicator retreating by 5.3 per cent. The Supramaxes and Handysizes also recorded substantial losses, with the gauge for the former’s freight rates dropping by 3.7 per cent while the latter shed 1.9 per cent.
In contrast, most of the Baltic’s wet indices continued to move higher, with the gauge for the dirty tankers climbing 0.7 per cent and their clean siblings gaining 0.4 per cent. The indicator for LNG freight rates remained unchanged for a third consecutive day, while the LPG index gained eight per cent.
The View from the Shipfix Desk
According to news reports, a shortage of soybeans is developing in China. Amid rising prices and negative margins, Chinese processors of the oilseed reduced their purchases of foreign-sourced supplies earlier in the year. As a result, the country is currently running short of a vital feed source for its hog herd. The country’s pig breeders are traditionally using soybeans to fatten their herds in the months before the Chinese Lunar Holidays. The shortage has led to soybean futures for delivery next month trading more than twenty per cent higher than the January contracts at the Dalian Commodity Exchange.
The increasing shortage of soybeans in China has been reflected in a recovery in order volumes for cargoes to be discharged in China since September. The forward-looking nature of the data set suggests that Chinese buyers have been looking to replenish dwindling stocks. However, the time lag involved in the shipments is likely to support soybean prices in the short term.
