By Ulf Bergman
Macro/Geopolitics
Much of the coming week’s focus will be on the Federal Reserve and its policy meeting on Wednesday. The markets are expecting that the rate-setters at the US central bank will increase interest rates by another 75 basis points. However, some investors have suggested that an even larger increase could be on the cards, especially after last week’s higher-than-expected US inflation rates.
The Chinese economy also showed some signs of a recovery last week, with data for August showing that industrial production, retail sales and fixed-asset investment grew faster than many economists had expected. The unexpected strength was, to a great extent, the result of the country’s stimulus programmes starting to have an effect on economic activities. Still, the Chinese statistics agency said in a statement when the data was released that the country’s economy is facing a more complex outlook than it did in 2020, potentially suggesting that more stimulus programmes may be on their way.
Commodity Markets
The weaker outlook for crude oil demand weighed on prices last week, amid expectations of higher interest rates and suggestions that US authorities will not support prices by filling up its strategic reserves. The Brent futures settled at 91.35 dollars per barrel on Friday, following a weekly decline of 1.6 per cent. Last week’s negative performance meant that the crude oil markets saw a third consecutive week of losses. The new week initially saw the contracts trading higher amid reports of an easing of the Covid restrictions in Chengdu. However, the positive sentiment proved short-lived, and the futures have continued to lose ground.
The European natural gas markets saw a considerable retreat last week, with the front-month futures ending the week 9.3 per cent lower at just below 188 euros per megawatt-hour. The efforts by the European Commission to ease the continent’s growing energy crisis, combined with the rising prospect of lower growth weighing on demand, contributed to the prices falling to their lowest levels since late July. The contracts have continued lower in today's trading with losses of around five per cent.
The sharp retreat of the European natural gas prices contributed to thermal coal prices losing ground last week. The October futures for delivery in Rotterdam fell by nearly five per cent last week and settled at 304 dollars per tonne on Friday. The weekly loss for the Newcastle contracts was a bit more modest, with the October futures shedding 0.6 per cent and ending the week at 428 dollars per tonne.
Iron ore prices fell last week amid a weaker demand outlook following reports of rising steel inventories in China. The October futures trading at the Singapore Exchange ended the week 4.8 per cent lower at 98 dollars per tonne, with the negative momentum maintained into the new week with losses of more than one per cent so far in today’s session.
Among the base metals, only nickel prices moved higher last week while the others faced modest losses. The copper contracts trading at the London Metal Exchange fell by 1.2 per cent amid a weaker demand outlook on the back of the prospect of lower global growth. The aluminium and zinc contracts shed 0.4 per cent last week as lower demand was offset by falling production amid rising energy costs. In contrast, the nickel futures advanced by 5.5 per cent as higher energy prices, especially in Europe, weighed on smelters’ output.
A downgrade of the supply outlook for the 2022/23 marketing year by the USDA saw Soybean futures trading in Chicago advancing by 3.3 per cent last week. In contrast, the wheat and corn futures retreated by 1.1 per cent as a rail strike that could have disrupted the flow of the grains in the US was averted at the last minute.
Freight Markets
Last week saw all of the Baltic Exchange’s freight indices in the black, with solid gains across the board. Despite losses on Friday for the largest dry bulk vessels, the headline Baltic Dry Index advanced by 28 per cent last week. Most of the impressive gains originated from the continued rebound for the Capsizes, with their sub-index soaring by 126 per cent during the last five sessions. Improving sentiment and weather disruptions around the ports in China contributed to the week’s gains. In comparison, the healthy gains across the other dry bulk vessel segments looked relatively modest. Still, the sub-index for the Panamaxes recorded a weekly increase of 6.7 per cent, while the Supramaxes advanced by 5.2 per cent and the Handysizes gained 3.7 per cent.
The Baltic’s tanker indices also had a good week, albeit not quite of the same magnitude. The indicators for the clean and dirty tankers advanced by around four per cent during the previous week. The LNG carriers saw their Baltic index advancing by 34 per cent amid increasing demand for seaborne transportation of liquified natural gas, while the gauge for the LPG tankers gained 7.6 per cent.
The View from the Shipfix Desk
The global supply of fertilisers has been one of the victims of the war in Ukraine. While shortages due to rising energy prices led to many countries imposing export restrictions in the year before the Russian invasion of its western neighbour, the disruptions following the commencement of hostilities and sanctions saw prices rising further during the latter parts of the first quarter. However, the prices retreated as high prices, and lower economic growth saw some demand destruction. Still, following a period of relative stability, US fertiliser prices have increased by around fifteen per cent since the end of July.
Despite the rising prices, global cargo order volumes for fertilisers have increased in recent weeks, with last week’s data likely to increase further as the current data set only accounts for the first four days of the week. According to Shipfix order data, Russia and China have contributed to the rise in global volumes. Hence, an improving global supply situation in the coming weeks and months may see the recent price rally ease off somewhat.
Data Source: Shipfix