By Ulf Bergman
Macro/Geopolitics
Despite recent moves by the Chinese authorities to ease some of its Covid policies and provide support for the country’s beleaguered property sector, rising infection rates put pressure on the Chinese demand outlook for many commodities. In addition, the latest development has also seen the Chinese currency weakening against the US dollar after gaining ground since the beginning of the month. Should the yuan continue to weaken against the US currency, it will yet again reduce the room for manoeuvre for the Chinese central bank in its quest to support the country’s flagging growth. Hence, it could result in an even weaker Chinese demand outlook.
Commodity Markets
Following Tuesday’s marginal gains, the Brent crude oil futures returned to their recent downward trajectory. The contracts ended yesterday’s trading at 92.86 dollars per barrel, following a 1.1 per cent decline for the day. Today’s trading saw the futures initially dipping below 92 dollars, but some of the losses have since been erased.
After gains during the first two days of the week, the European natural gas futures reversed course during Wednesday’s session. The front-month contracts recorded a loss of 8.2 per cent for the day and settled below 113 euros per megawatt-hour. Forecasts of warmer weather and lower demand contributed to the falling prices. The contracts have continued to slide in today’s trading, with losses of around five per cent.
Thermal coal prices gave up some of the recent gains yesterday as supply concerns eased. The Newcastle futures for delivery in December settled at 316 dollars per tonne, following a 4.2 per cent loss for the day. The contracts for delivery in North-West Europe next month declined by 3.7 per cent and ended the session at 197 dollars per tonne.
The iron ore futures trading on the Singapore Exchange went against the general flow of negativity yesterday. The contracts for delivery next month continued on their current path upward and ended Wednesday’s session just shy of 97 dollars per tonne, following a 2.4 per cent gain for the day. The contracts saw some losses earlier in today’s trading, but most of those have since been reversed.
The base metals ended yesterday’s trading at the London Metal Exchange in the red amid renewed concerns over the demand outlook. The aluminium and copper futures settled nearly one per cent lower. However, zink and nickel saw the most significant losses, with the contracts for the former shedding 1.9 per cent and the latter dropping by a whopping nine per cent.
The grains and oilseeds also ended yesterday’s session lower amid optimism over the global supply outlook. The wheat futures trading in Chicago fell by 1.3 per cent amid rising expectations that the deal covering Ukrainian seaborne exports will be extended. The corn contracts saw a marginal retreat of 0.2 per cent for the day, while the soybean futures ended the session nearly two per cent lower. Prices may also remain under pressure in the coming days, as Russia agreed to extend the deal earlier today.
Freight Markets
The pattern that has dominated the dry bulk freight market in recent days remained in place on Wednesday as well, albeit to a lesser extent. The Capesizes continued to underperform their smaller siblings, with the Baltic Exchange’s gauge for freight rates in the segment retreating by 2.8 per cent. The smallest vessel segments also had a day in the red, with the indicators for the freight rates in the Supramax and Handysize segments retreating by half a per cent. In contrast, the Panamaxes continued to see its freight rates moving higher, with their sub-index advancing by 0.4 per cent. As a result of the weak performance for the Capesizes, the headline Baltic Dry Index registered a daily loss of 0.9 per cent.
The Baltic Exchange’s wet freight indices continued to outperform the gauges in the dry sector. The dirty tanker index advanced by 3.7 per cent, while the indicator for the clean tankers gained 1.5 per cent. The index for the LPG freight rates continued to rise and gained one per cent on Wednesday, while the indicator for the LNG carriers remained unchanged.
The View from the Shipfix Desk
Rising expectations that the UN-monitored deal that has allowed Ukraine to recommence its seaborne exports of agricultural commodities will be extended weighed on prices yesterday. Today’s confirmation that the agreement has been prolonged for another 120 days is likely to put additional pressure on prices. The uncertainty over the deal’s future, combined with an escalation on the ground in Ukraine, has weighed on shippers’ confidence in recent weeks, and cargo order volumes have suffered as a result. Weekly volumes dropped significantly in the middle of October and have remained at the lowest levels since early August. However, the increased clarity can be expected to fuel a rebound in ordering activities.
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