By Ulf Bergman
Macro/Geopolitics
Yesterday’s release of US PMI data for the country’s manufacturing sector provided some evidence that the path to a recession is not a straight line and, indeed, not a foregone conclusion. While the data point towards a slowdown in US industrial production, the reading was higher than widely expected. Markets had been expecting the indicator to fall to 52 from 53 in June, but the actual reading only retreated marginally to 52.8 and remained in the expansionary territory with a margin. The higher-than-expected PMI could provide interest rate hawks at the Federal Reserve with additional arguments for continued aggressive rate hikes.
Escalating tensions between the US and China are adding to the headwinds facing the global economy and the commodity markets. The US House Speaker, Nancy Pelosi, looks set to arrive in Taiwan later today. The visit could lead to lasting effects on Trans-Pacific relations and affect trade and security in the region.
Commodity Markets
After several days of focus on tight global supplies, oil markets returned to worrying about the demand outlook during yesterday’s session. Weakening manufacturing PMIs for some of the world’s major economies renewed concerns about falling demand. In addition, traders are counting down to Wednesday’s OPEC+ meeting, which will cover the production guidelines for September. The Brent futures settled at 100 dollars per barrel yesterday, following a 3.8 per cent drop. Prices have also continued lower in today’s early trading, with additional losses of around one per cent.
European natural gas ended Monday’s session 5.2 per cent higher at 200.79 euros per megawatt-hour, following a volatile day spanning 190 to 202 euros. Continued low flows through the pipelines from the east contributed to mounting fears over supplies.
Thermal coal prices continued to ease off following the gains during the second half of July, as recent weak economic data weighed somewhat on the demand outlook. Newcastle coal futures for delivery in September edged down by 0.3 per cent and settled at 393 dollars per tonne, while the contracts for delivery in North-West Europe shed 1.7 per cent to 353 dollars per tonne.
Iron ore had a rather quiet day, with futures for delivery in September trading at the Singapore Exchange declining by a marginal 0.2 per cent to 114.75 dollars per tonne. Today's trading has also remained uneventful.
The darkening outlook for the global economy weighed on base metal prices, with only zinc moving higher. Copper futures trading at the London Metal Exchange ended yesterday’s session 1.2 per cent lower, while the aluminium contracts shed 2.3 per cent. Nickel futures saw marginal losses at 0.2 per cent, while zinc gained 0.6 per cent.
The tentative resumption of seaborne grains shipments from Ukraine contributed to wheat prices declining by nearly one per cent on Monday. However, the limited scope of the initial exports is unlikely to affect global supplies in the near term, and any disruptions to the flow could see prices moving higher again. Soybeans futures fell by 2.6 per cent in yesterday’s trading following reports that Chinese imports of the oilseed have declined. Corn futures joined the general decline for agricultural commodities, with contracts trading in Chicago retreating by 1.5 per cent.
Freight Markets
The Baltic Exchange’s dry bulk indices remained in the red yesterday, but in most cases, there was far less drama than in previous days. The headline Baltic Dry Index retreated by 1.2 per cent, but unlike recent days most of the losses originated from the smaller vessel segments. The sub-index for the Supramaxes declined by 2.2 per cent, while the Handysizes’ gauge fell by 1.6 per cent. In contrast, the indicator for the Capesizes only dropped by 0.9 per cent, while the Panamaxes saw modest losses at 0.3 per cent.
Unlike the dry bulk freight rates, tanker rates advanced yesterday. The Baltic’s index for dirty tankers rose by 0.4 per cent, while the gauge for the clean tankers saw marginal gains of 0.1 per cent. In contrast, the indicator for the LPG carriers declined by 2.6 per cent, while rates for the LNG tankers remained unchanged.
The View from the Shipfix Desk
As Europe grapples with the continent's evolving energy crisis amid low natural gas supplies from Russia, thermal coal continues to reclaim its previous importance to the European energy mix. As a result of the renewed European appetite for the dirtiest of fossil fuels, coal prices remain near their historic highs, despite the recent retreat.
Shipfix’s cargo order data show continued strong demand for tonnage to carry coal to European ports. While last week saw a drop in volumes, possibly due to the summer holidays in Europe, compared to a year ago, they remain substantially higher. The recent drop in cargo order volumes could also explain the recent decline in coal prices. However, the dip looks to be seasonal, and prices and volumes are likely to recover in the not-too-distant future.
The deal that will allow Ukraine to resume its exports of wheat and other agricultural commodities is only days old. Still, concerns are mounting among traders that Russian commitments to the agreement remain ambivalent following last week’s missile attack on the port in Odesa. Nevertheless, preparations appear to be underway to recommence shipments.
Data Source: Shipfix