By Ulf Bergman
Macro/Geopolitics
The US dollar has lost some ground since reaching a twenty-year high a week ago, providing some relief for global inflationary pressures. The surging greenback has made dollar-denominated commodities more expensive in many parts of the world and provided fuel for inflation. Hence, central banks around the world are likely to join the US with aggressive interest rate hikes. The European Central Bank is poised to join the fray, with its policymakers meeting today to decide on the bloc’s first interest rate hike in over a decade. While a 25 basis point increase looks like the safer bet, the probability of a more significant 50 basis point rise has been steadily growing in the last week. After briefly dipping below parity to the dollar, the euro has strengthened in recent days in expectation of today’s meeting delivering an interest rate hike.
Commodity Markets
Brent crude oil futures declined by 0.4 per cent on Tuesday following official data pointing towards weaker US petrol demand despite the country being in the middle of the summer driving season. Data from the EIA showed that US inventories rose during the previous week and the Brent contracts settled just below 107 dollars per barrel. Today’s trading has seen the futures continuing lower, with losses of nearly four per cent.
European natural gas prices edged higher yesterday as traders awaited the potential reopening of the Nord Stream pipeline on Thursday, which has been shut for planned maintenance. However, there have been rising concerns that it would remain closed in retaliation for the European sanctions on Russia. Front-month futures ended the day half a per cent higher at 155 euros per megawatt-hour. Prices have, however, fallen by more than four per cent in today’s trading amid reports that the pipeline is operational again.
Thermal coal prices continued to recover lost ground following the losses last week, amid a strengthening demand outlook. Newcastle futures for delivery in August ended the day three per cent higher at 382 dollars per tonne.
Iron ore futures recuperated some of the previous losses but failed to return to above 100 dollars per tonne. A weaker demand outlook continues to weigh on the prices, but lower production guidance from mining-giant Vale helped push prices higher. August contracts trading at the Singapore Exchange settled at 99.49 dollars per tonne following a 2.4 per cent gain. Today’s trading has been marked by a return to negative sentiments, with prices nearly two per cent lower.
Base metals saw a reversal of fortunes yesterday, with healthy gains across the board. Moves by the Chinese authorities to support the ailing property sector and a weaker dollar contributed to yesterday’s gains. Copper futures trading at the London Metal Exchange ended the day 1.4 per cent higher, while the aluminium contracts gained 1.7 per cent for the day. Nickel futures advanced by 2.8 per cent, and zinc prices were boosted by two per cent.
Weaker demand and a better supply outlook saw soybean futures settling near the lowest levels since the end of January, following a 1.9 per cent decline. Corn futures continued lower amid stabilising growing conditions in the US and ended the day at the lowest levels for six months after retreating 0.8 per cent. Wheat contracts trading in Chicago gained 0.9 per cent as traders continued to await developments in the talks aiming at a resumption of Ukrainian seaborne exports of grains.
Freight Markets
The dry bulk freight markets saw a narrative yesterday similar to Tuesday’s, where gains in the Panamax segment failed to offset the losses seen by their larger siblings. The Baltic Dry Index shed 1.5 per cent following extensive losses for the Capesizes, with the largest vessels’ sub-index retreating by 6.2 per cent. In contrast, the mid and small-sized tonnage segments remained in the black yesterday. The Panamaxes gained 4.4 per cent, while Supramxes advanced by 0.9 per cent, and Handysizes edged half a per cent higher.
The Baltic Exchange’s dirty tanker index gained 1.3 per cent, while the indicator for the clean tanker lost a marginal 0.2 per cent. The gauge for the LNG carriers remained unchanged, while the Index for the LPG tankers gained 2.6 per cent.
The View from the Shipfix Desk
Aluminium prices have recovered in recent days following trading at the lowest levels for over a year. Still, the metal is trading more than 35 per cent below the peak recorded in early March. Increased mining output and the darker outlook for the global economy have been weighing heavily on prices. In addition, soaring energy prices have contributed to lower demand, as the process of producing aluminium is very energy intensive.
The drop in demand has also translated into declining bauxite exports from Guinea, one of the largest suppliers of the vital ingredient for aluminium production. However, volumes loading in West Africa have started to recover in recent weeks, albeit from very low levels.
Data Source: Shipfix