By Ulf Bergman
Macro/Geopolitics
Much of today’s focus will be on the Federal Reserve and its decision on interest rates. The US central bank is widely expected to raise interest rates by another 75 basis points. However, traders and investors will be paying close attention to the Chairman’s wording during the press conference for any indications of the size of future hikes. At the moment, economists are split over if the Fed will reduce the pace of interest rate rises in December as inflation rates remain high, but with increasing risks of a recession in the US. Following a strong recovery in recent days, the US dollar stabilised yesterday as traders awaited today’s decision, providing some support for the commodities markets.
Commodity Markets
Crude oil futures advanced yesterday amid reports of a sizeable drawdown in US crude inventories, signalling a continued robust demand for the commodity. The Brent contracts ended Tuesday’s session at 94.85 dollars per barrel, following a 2.2 per cent increase for the day. The US crude oil futures saw similar gains and settled at 88.37 dollars per barrel.
European natural gas prices went against the flow during yesterday’s trading and ended the session in the red. The futures for delivery in December fell by 5.5 per cent and settled at 124 euros per megawatt-hour. Today's trading has seen further losses, with the contracts shedding around five per cent. Across the Atlantic, the US contracts also experienced a session of losses yesterday, and ended the day ten per cent lower as milder weather in the coming two weeks weighed on demand.
Despite recovering some lost ground yesterday, European thermal coal prices remained near the lowest level since mid-March amid an improving energy supply situation in the continent. The December futures for delivery in North-West Europe gained more than four per cent on Tuesday and settled at 227 dollars per tonne. The Newcastle contracts for delivery next month also recovered somewhat and advanced by 1.4 per cent to 361 dollars per tonne.
The suggestions that China may relax its zero-Covid policy early next year contributed to an improving sentiment in the iron ore market. The December contracts trading on the Singapore Exchange advanced by 1.2 per cent during Tuesday’s trading. The positive momentum has also carried into today’s session, with the contracts gaining more than three per cent.
The base metals also benefited from improving sentiments, with gains across the board. The copper futures trading on the London Metal Exchange ended the day 2.7 per cent higher, while the aluminium contracts gained 0.9 per cent for the day. The zinc and nickel futures also registered robust gains, with the former advancing by 1.7 per cent and the latter soaring by 8.2 per cent.
The rising tensions in Ukraine and Russia’s suspension of its participation in the agreement that allows the safe passage of Ukrainian seaborne grains exports contributed to rising agricultural prices yesterday. The wheat futures trading in Chicago advanced by 2.3 per cent, while the soybean contracts gained two per cent. The corn futures saw more modest gains and ended Tuesday’s session nearly one per cent higher.
Freight Markets
The Baltic Exchange’s dry bulk freight indices were deeply in the red on Tuesday, with the headline Baltic Dry Index retreating by 5.8 per cent. The largest vessel segment was the day’s worst performers, with the Capesizes’ sub-index leading the way down with an eleven per cent drop amid limited ordering activities. The Panamax and Supramax freight indicators registered losses of around three per cent, while the gauge for the Handysizes fell by nearly two per cent.
The Baltic’s wet indices were also mainly in the red on Tuesday. The dirty tanker index fell by 0.9, while the clean equivalent dropped by 1.5 per cent. The gauge for the LNG registered a marginal decline of 0.7 per cent but remained just below the recent all-time high. The indicator for the LPG tankers went against the flow yesterday and posted a healthy gain of nearly eleven per cent for the day.
The View from the Shipfix Desk
The European import ban on Russian coal has forced the continent’s buyers to seek alternative sources of the fossil fuel amid a tightening energy supply situation. It has resulted in increasing shipments from more distant shores, such as South Africa and Australia. At the same time, Russian coal miners have been forced to find new markets for their output. China and India are two markets that have increased their imports of Russian coal amid discounted prices. Trade flow data highlight a substantial increase since May.
Shipfix’s more forward-looking cargo order data, on the other hand, suggest that the recent spike in imports may come under pressure in the coming months. The aggregate order volumes for Russian coal discharging in China and India have been trending lower since the beginning of the third quarter. Hence, given the time lags involved, the export volumes of Russian coal may see some reductions during the final parts of the year. However, Indian cargo order volumes bounced back somewhat during the last month, offsetting the decline in shipments to China.
Data Source: Shipfix