By Ulf Bergman
Macro/Geopolitics
US inflation in November was lower than expected by the market, with the annual rate retreating to 7.1 per cent from 7.7 per cent in October. The latest reading also failed to match the consensus expectation of 7.3 per cent. The softer inflation data led to a weakening of the US dollar, as the Federal Reserve is likely to be able to slow down the pace of interest rate hikes as a result of it. Markets are expecting that the US central bank will raise interest rates by 50 basis points when the rate-setters meet later today. The weaker dollar contributed to many commodities and FFA contracts moving higher during the latter parts of yesterday’s trading session.
Commodity Markets
A weaker dollar and an improving demand outlook in the wake of the weaker-than-expected US inflation data contributed to crude oil prices extending Monday’s gains yesterday. The Brent futures gained 3.4 per cent during yesterday’s trading session and settled at 80.68 dollars per tonne. The contracts have maintained the positive momentum in today’s trading session, with gains of around half of a per cent.
European natural gas prices recovered some of Monday’s losses yesterday, with the front-month futures gaining 0.7 per cent for the day to settle at 137.53 euros per megawatt-hour. In the US, natural gas prices continued to surge amid higher demand due to colder weather and ended the session more than five per cent higher.
Thermal coal futures experienced a day of somewhat mixed fortunes on Tuesday. The Newcastle futures for delivery in January reacted positively to the weaker dollar and settled at 278 dollars per tonne, following a daily gain of 1.2 per cent. In contrast, the contracts for delivery in Rotterdam next month retreated by 0.3 per cent to 235 dollars per tonne amid weakening European demand for the dirtiest of fossil fuels.
After gaining more than five per cent last week, the iron ore futures trading on the Singapore Exchange have given some of the gains during the week’s first two sessions. The January contracts shed 0.5 per cent on Tuesday and settled below 109 dollars per tonne. Sentiments have not improved in today’s trading, with the contracts retreating by another half of a per cent.
Most of the base metals benefitted from yesterday’s rebound in investors’ risk appetite. The copper and zinc futures trading on the London Metal Exchange advanced by 1.5 per cent, while the aluminium contracts saw gains of nearly two per cent for the day. However, the nickel futures went against the flow and had lost 4.2 per cent by the end of the session.
For the agricultural commodities trading in Chicago, yesterday’s session ended with only limited moves for the day, The wheat futures had retreated by half a per cent at closing, while the corn contracts registered a marginal 0.1 per cent loss for the day. In contrast, the soybean futures advanced by a modest 0.7 per cent.
Freight and Bunker Markets
Ahead of the release of US inflation data, dry bulk freight rates remained under pressure, with most of the Baltic Exchange's indices in the red yesterday. The sub-index for the Capesizes was the day’s weakest performer amid a loss of 1.1 per cent. The gauge for the Panamaxes shed 0.6 per cent, and the Handysizes retreated by 0.4 per cent. A 1.2 per cent gain for the Supramaxes’ freight rate indicator offset some of the losses in the other segments and contributed to the headline Baltic Dry Index only declining by 0.3 per cent. However, sentiments changed following the release of the US inflation data, with the FFA market ending the day on a solid note.
Among the Baltic’s wet freight rate indicators, only the clean tanker index remained in the black yesterday, following a gain of 1.4 per cent. In contrast, the gauge for the dirty tankers retreated by 0.9 per cent. The freight rates for the gas carriers also declined on Tuesday, with the gauge for the LNG tankers declining by 3.2 per cent and the LPG index easing off by a marginal 0.2 per cent.
Bunker prices staged a modest recovery yesterday amid rising crude oil prices after an extensive run of daily declines. The rebound in Singapore was modest, with the VLSFO gaining 0.4 per cent to 587 dollars per metric tonne. However, the gains were more substantial in Rotterdam and Houston, with prices advancing by 3.4 in the former location while the latter saw gains of 2.4 per cent.
The View from the Shipfix Desk
The wheat futures trading in Chicago have declined by more than forty per cent since their peak in May and are currently near the lowest levels since October 2021. The Russian invasion of Ukraine initially fuelled fears that global supplies would be insufficient, with prices gaining substantially as a result. However, a deal that has allowed Ukrainian seaborne exports of grains to recommend and a very sizeable Russian wheat harvest have put considerable pressure on global prices.
Despite sanctions and other disruptions to Russian trade flows, the year’s record wheat harvest has seen cargo order volumes for the grain loading in the country’s ports surging since the beginning of the third quarter. While October and November failed to match the September volumes, they were among the highest ever recorded. However, the current month has seen a slow start to ordering activities, suggesting that Russian wheat exports will start to ease off in the coming months.
The easing of the Chinese Covid restrictions has been eagerly awaited by many in the commodity and dry bulk markets, as a reopening of the Chinese economy could be expected to boost demand. Still, the Chinese economy is facing considerable headwinds, and the economic revival may fail to impress.
Data Source: Shipfix