By Ulf Bergman
Macro/Geopolitics
Rising Covid infection rates in China dominated the news flow last week, even before the reports of protests and unrest started to emerge. The number of new cases has surpassed the highs recorded during the lockdown of Shanghai earlier in the year, increasing the likelihood of new restrictions and lockdowns. However, the protests across the country over the weekend against the country’s strict zero-Covid policy have added an extra dimension to the country’s continued fight against rising infection rates. Should the unrest continue, it could heap additional pressure on the country’s flagging growth rates and weigh on the country’s appetite for imported commodities.
Still, last week’s move to support the country’s troubled real estate sector by the Chinese authorities could offset some of the negatives arising from Covid and any further protests. Friday’s lowering of commercial banks’ receive requirements could see additional credit flowing into the property sector and fuel a rebound in its demand for raw materials.
Last week also saw weaker-than-expected PMI numbers for the US manufacturing and service sectors. The markets had expected S&P’s manufacturing PMI for manufacturing to fall to 50 from 50.4 the month before, but the actual reading was well into the contractionary territory at 47.6. For the services sector, the reading of 46.1 was deeper into contraction than widely expected. The soft readings contributed to the US dollar losing some ground last week, providing some relief to the commodities markets.
Commodity Markets
Renewed concerns over global demand in general and Chinese demand, in particular, saw the Brent crude oil futures recording a third consecutive weekly decline. The contracts ended last week at 83.63 dollars per barrel, the lowest since the end of September, following a 4.6 per cent retreat for the week. The negative momentum has been maintained into the new week, with the futures trading around three per cent lower amid rising uncertainty over the situation in China.
The European natural gas futures extended recent gains into a second consecutive week. The front-month contracts advanced by 7.7 per cent and settled at 124.37 euros per megawatt-hour on Friday. Rising demand in the wake of colder weather across the continent contributed to the higher prices. Across the Atlantic, US natural gas prices eased off from the highest prices since late September during the latter parts of last week amid forecasts of milder weather. Still, the contracts gained more than eleven per cent in the past week.
Thermal coal futures continued to recover lost ground last week amid rising demand. The Newcastle futures for delivery next month ended Friday’s trading at 361 dollars per tonne, the highest closing price since the beginning of the month, following a weekly gain of more than seven per cent. The contracts for delivery in North-West Europe in December recorded an eleven per cent gain for the week and ended the week above 241 dollars per tonne.
The December iron ore futures trading on the Singapore Exchange staged a recovery during the second half of the week after shedding more than five per cent during the first two sessions. Reports of more help for China’s beleaguered property sector helped improve sentiments. The contracts settled at 99.15 dollars per tonne at Friday’s close, following a marginal 0.6 per cent gain for the week.
The continued challenging outlook for the global economy weighed on sentiments for the base metals during the past week. The copper futures trading at the London Metal Exchange shed 0.8 per cent over the course of the week, while the aluminium and zinc contracts retreated by 3.2 and 3.,6 per cent, respectively. In contrast, the nickel contracts closed a marginal 0.1 per cent higher on Friday compared to the week earlier.
Among the agricultural commodities, only wheat registered any significant moves during the past week. The wheat futures trading in Chicago recorded a third consecutive week of losses as the deal that has allowed Ukraine to resume its seaborne exports of agricultural commodities was extended. The contracts settled at the lowest levels since the middle of August following a weekly loss of 3.5 per cent. In contrast, the corn futures ended the week unchanged, and the soybean contracts gained a modest 0.6 per cent.
Freight Markets
The dry bulk freight market was dominated by the strong performance of the largest vessels. The Baltic Exchange’s sub-index for the Capesizes soared by nearly 44 per cent, contributing to an 11.4 per cent gain for the headline Baltic Dry Index. Still, despite the solid week for the Capes amid improving sentiments in the iron ore trade, their freight gauge remained nearly sixty per cent below what was observed a year ago. In contrast to their larger siblings, the freight rate indicator for the Panamaxes declined by 7.2 per cent amid a global drop in order volumes. The Supramaxes gained one per cent over the week, while the Handysizes saw their sub-index retreating by 2.4 per cent.
The Baltic’s wet indices also had an eventful week, with substantial moves for many gauges. The dirty tanker index gained 5.5 per cent, while the equivalent for vessels carrying clean products soared by more than 21 per cent. For the gas carriers, the week ended in the red, with the indicator for the LNG tankers dropping by more than 22 per cent and the gauge for the LPG freight rates retreating by almost two per cent.
The View from the Shipfix Desk
Thermal coal prices have staged a comeback during the second half of the month as colder weather in the Northern Hemisphere has boosted demand at the same time as supply disruptions have reduced shipments from some of the largest producers. However, easing concerns over Europe’s energy supply situation for the coming winter and well-stocked coal inventories have put pressure on the continent’s demand for additional supplies of the dirtiest of fossil fuels. Last week saw cargo orders for coal loading in South Africa destined for European ports fall sharply compared to the preceding weeks. Hence, given the forward-looking nature of the data set, imported volumes of South African coal could come under pressure in the coming months should the development continue.
Data Source: Shipfix