By Ulf Bergman
Macro/Geopolitics
The US economy has seen a few weaker-than-expected economic data releases so far this week. Following Monday’s weak ISM Manufacturing PMI, yesterday saw the number of job openings during August failing to meet expectations by quite a margin and reaching the lowest levels since June last year. Still, the number of new jobs remains above what was observed prior to the pandemic. Nevertheless, a manufacturing PMI of 50.9 in September, down from 52.8 previously, could herald weaker job numbers in the coming months.
The soft economic data releases have seen the US currency losing some of its recent allure. The dollar index reached a two-week low yesterday as speculations mounted that the Federal Reserve could afford to adopt a less aggressive stance amid a weakening of the US economy. The development could provide some support for the commodities markets, and by extension seaborne freight rates, as dollar-denominated assets become relatively cheaper around the world.
Commodity Markets
Crude oil prices have rallied this week, ahead of today’s OPEC+ meeting. Traders are expecting that the cartel will impose production cuts to support the markets amid falling prices. Following a gain of more than four per cent on Monday, the Brent futures continued higher yesterday and settled 3.3 per cent above Monday’s close at 91.80 dollars per barrel.
European natural gas prices continued to slide during Tuesday’s session, with the front-month futures declining by more than four per cent. The contracts ended yesterday’s session at just below 162 euros per megawatt-hour, the lowest since late July. Suggestions that European supplies will be enough for the continent to make it through the winter as inventories are filling up and milder weather across many parts of Europe contributed to the decline. In contrast, US natural gas prices advanced by nearly six per cent on Tuesday amid reports of higher than expected demand.
Easing European thermal coal demand in the wake of falling natural gas prices saw the futures for delivery in North-West Europe next month retreating by 4.6 per cent yesterday. The decline sent the contracts to just below 300 dollars per tonne, the lowest for over a week. The benchmark futures for the Asian coal trade had a somewhat better day, with the Newcastle contracts for delivery in November registering a daily decline of 0.6 per cent.
Iron ore prices continued their recent oscillation between daily gains and losses yesterday. The November futures trading at the Singapore Exchange gained 1.2 per cent and closed at 93.36 dollars per tonne amid mounting speculation that the Chinese authorities will ease its Zero-Covid policy. Such a move could improve the demand outlook for the steelmaking ingredient, and prices have continued to rise in today’s trading with gains of around one per cent.
Tuesday proved to be a solid day for the base metals, as rising risk appetite among traders drove prices sharply higher. The copper futures trading at the London Metal Exchange ended yesterday’s session 2.8 per higher, while the aluminium contracts soared by 5.8 per cent. Zinc and nickel also registered robust gains, with the futures for the former advancing by 2.9 per cent and the latter’s gaining 3.7 per cent.
The agricultural commodities had a mixed session yesterday in line with recent sessions. The wheat and corn futures trading in Chicago declined by more than one per cent, while the soybean contracts advanced by 0.7 per cent.
Freight Markets
Most tanker and dry bulk freight rates only registered minor changes yesterday. However, the Baltic Exchange’s indicators for the rates for the Capesizes and the LNG carriers did stand out from the crowd with extensive gains.
The headline Baltic Dry Index advanced by 4.3 per cent on Tuesday, propelled higher by a ten per cent gain for the Capesize spot rates amid improving sentiments in the segment. Among their smaller siblings among the dry bulk vessels, only the Panamaxes made any significant headway, with their sub-index gaining 1.3 per cent. For the smallest vessels, the gauges for the Supramaxes and Handysizes saw gains of less than half a per cent.
Among the Baltic’s tanker indices, only the LNG carrier freight rate indicator made it into positive territory yesterday with a gain of 6.5 per cent. In contrast, the LPG tanker index retreated by 0.3 per cent. Mounting concerns over a crude oil production cut saw the dirty tanker index retreating by nearly one per cent, while the clean index remained unchanged.
The View from the Shipfix Desk
European thermal coal prices have been declining since early September, as natural gas prices on the continent have retreated amid easing demand and an improving supply outlook for the coming winter. Still, despite falling by more than twenty per cent, prices remain well above the levels observed before the Russian invasion of Ukraine amid continued robust demand from European buyers.
Shipfix’s weekly cargo order volumes for coal discharging in Europe show that the continent’s buyers have not lost their newfound appetite for the dirtiest of fossil fuels. While the weekly volumes are somewhat below recent peaks, they still point towards a robust flow of thermal coal to Europe’s ports in the coming months. Hence, European coal prices are likely to remain elevated.
Data Source: Shipfix