By Ulf Bergman
Macro/Geopolitics
The US inflation data for October that was released last week proved to be softer than expected. At 7.7 per cent, the year-on-year increase in consumer prices was lower than the eight per cent consensus expectation and also lower than what was recorded in September. The lower-than-expected reading prompted speculations that the Federal Reserve will adopt a less aggressive stance at the next rate-setting meeting in December, resulting in the US dollar taking a tumble. The weaker dollar contributed to an improving demand outlook for many commodities, with the metals benefitting in particular.
The Chinese authorities released a sixteen-point plan at the end of last week, which aims at supporting the country’s ailing property sector. The problems among the country’s real estate companies have weighed heavily on the Chinese economy in the past year. Among other things, the new initiative is looking to remove some of the pressures by easing the sector’s liquidity problems. Should the measures be successful, they could improve the demand outlook for commodities.
Commodity Markets
Crude oil prices saw a recovery during the latter part of last week following a weak start. An improving demand outlook amid softer US inflation data and a weaker dollar saw the Brent futures offsetting some of the week’s early losses but nevertheless ended the week in the red. Despite a 2.5 per cent gain on Friday, the Brent contracts shed 2.6 per cent for the week and settled at 96 dollars per barrel. However, a rebound for the US dollar on Monday has seen the contracts giving up early gains and retreating by more than one per cent.
The European natural gas market remained under pressure amid high inventories and lower demand. The front-month futures shed nearly fifteen per cent during the past month and settled below 98 euros per megawatt-hour. However, the new week has seen a recovery of around ten per cent amid a drop in deliveries from Norway.
Thermal coal prices continued to lose ground last week amid falling demand as European inventories have filled up. The futures for delivery next month in North-West Europe fell by 16.4 per cent and ended the week at 181 dollars per tonne, near the lowest closing price since the end of February. Despite a 3.5 per cent gain on Friday, the December Newcastle futures also recorded extensive losses last week. The contracts dropped by more than fourteen per cent over the week and ended Friday’s session at 300 dollars per tonne.
The iron ore futures trading on the Singapore Exchange remained on the upward trajectory that began at the beginning of the month for most of last week. The December contracts gained 6.2 per cent over the week and settled at 91.28 dollars per tonne on Friday, despite a 2.2 per cent drop on Thursday. The positive momentum has also been maintained into the new week, with the contracts gaining more than three per cent following the news that the Chinese government will provide support for the country’s troubled property sector.
After a weak start to the week with losses across the board, the base metals saw substantial gains on Thursday and Friday amid an improving demand outlook. As a result, the futures trading a the London Metal Exchange ended the week in positive territory. The copper, aluminium and zinc futures al ended Friday’s session around five per cent higher than the previous week. However, the nickel contracts provided the week’s standout performance, with a weekly gain of more than thirteen per cent.
An improving supply outlook saw agricultural commodities trending lower during the past week. The wheat futures trading in Chicago retreated by four per cent, despite a 1.3 per cent gain on Friday. The corn contracts fell by 3.1 per cent amid USDA projections of higher corn plantings in the marketing year ahead. For soybeans, the losses were more modest, and the contracts ended the week 0.8 per cent lower.
Freight Markets
A rebound for the Capesizes dominated the dry bulk freight markets last week. The Baltic Exchange’s sub-index for the largest vessels gained fifteen per cent following amid robust gains during the early parts of the week. Still, despite the progress, the indicator remains around sixty per cent below the levels recorded a year ago. In contrast, the smaller vessel segments ended the week in the red amid low ordering activities. The gauges for the Panamaxes and the Supramaxes fell by around four per cent, while the Handysizes dropped by 5.9 per cent. The strong performance for the Capesizes nevertheless offset the weakness for the smaller segments, and the headline Baltic Dry Index ended the week 2.4 per cent higher.
The Baltic’s wet indices had a better week, with positive performance across the board. The clean tanker gauge provided the week’s best performance with a gain of 11.8 per cent, while the indicator for their dirty relatives advanced by 3.2 per cent. Among the gas carriers, the freight rates for the LPG tankers led the way higher, with a weekly gain of 10.8 per cent, while the LNG rates recorded a modest 0.3 per cent advance.
The View from the Shipfix Desk
An extension of the deal that has allowed Ukraine to resume its grain exports may depend on the fortunes of Russian fertiliser exports. The facilitation of Russian exports of grains and fertilisers was also part of the original deal. Still, Russia has complained that Western sanctions have had a negative effect on that part of the deal. Hence, increasing shipments of Russian fertilisers may be required to save the deal.
According to Shipfix’s data, the cargo order volumes for Russian fertilisers heading for European ports trended lower in the months following the conclusion of the deal. However, the current month has seen a sharp reversal of the trend. With more than half of the month remaining, November’s volumes are already substantially higher than in recent months. Should the pattern be maintained, aggregate volumes could be the highest since July 2020, potentially aiding a successful outcome of the current negotiations.
The Ukrainian grain exports are facing renewed uncertainty amid the recent Russian suspension of its participation in the UN-monitored deal, followed by a rapid re-engagement, and a possible expiry of the current agreement later in November.
Data Source: Shipfix