By Ulf Bergman
Macro/Geopolitics
With the global newsflow still subdued in the past week, following the Christmas and New Year holidays in large parts of the world, the macro picture was dominated by mounting concerns over the health of the global economy. The International Monetary Fund suggested that a third of the world may be affected by a recession this year. The IMF also said that it is too early to say that the US fight against high inflation has been won, which also was confirmed by the release of stronger-than-expected labour data for the world’s largest economy during the past week. The prospects of higher US interest rates and the decline of the narrative of rate cuts during the second half of the year weighed on sentiments for many commodities.
In the week ahead, much of the focus will be on the release of US and Chinese inflation data on Thursday. The markets expect that Chinese price rises accelerated somewhat in December, while the US inflation is seen to have lost some of its positive momenta.
Commodity Markets
Crude oil saw a weak start to the year, with the Brent futures shedding 8.5 per cent during the first week. Most of the losses were realised during the first half of the week, but a marginal 0.2 decline on Friday saw the contracts ending the week at 78.57 dollars per barrel. The increasing risk of a global recession and rising Covid rates in the world’s largest importer, China, contributed to the weak sentiments. However, lower-than-expected fuel inventories in the US offset some of the losses. The new week has nevertheless begun on a positive note, with the contracts advancing by around three per cent.
Robust inflows of LNG cargoes and milder-than-usual weather across large parts of Europe contributed to natural gas prices in the continent retreating during the past week. The front-month futures dropped by 8.9 per cent over the week amid high volatility and settled below 70 euros per megawatt-hour on Friday. The contracts dropped as low as 65 euros during the week, the weakest since the final months of 2021. The US natural futures prices also recorded extensive losses last week amid a delay to the reopening of the Freeport LNG export terminal and higher-than-expected inventories. The contracts fell by around seventeen per cent.
The warm weather across large parts of Europe and falling natural gas prices contributed to European thermal coal prices beginning the year in the red, with the front-month futures for delivery in the Rotterdam area declining by more than ten per cent last week. The contracts settled below 171 dollars per tonne on Friday, the lowest level since the end of February last year. In contrast, the Newcastle futures for delivery next month advanced by 1.5 per cent last week and ended the week at 369 dollars per tonne despite a marginal loss on Friday.
More policy support for the ailing Chinese real estate sector contributed to the iron ore futures trading on the Singapore Exchange ending the week on a robust note. A 2.3 per cent advance on Friday saw the February contracts settling at 117.82 dollars per tonne, 1.5 per cent higher than at the end of the previous week. However, the positive momentum has not carried into the new week, with losses of around one per cent during Monday’s session.
The base metals ended the week on a positive note, with robust gains across the board on Friday amid an improving demand outlook for China. However, over the week, the picture was more mixed. The copper and zinc futures trading on the London Metal Exchange recorded weekly gains of 2.6 and 1.7 per cent, respectively. In contrast, the aluminium and nickel contrast were in the red over the week. The former declined by 3.5 per cent, while the latter was the week’s laggard with a loss of 6.6 per cent.
Grains and oilseed prices came under pressure in the past week amid volatile trading. Concerns over the global demand outlook as the likelihood of a recession increased contributed to the weekly declines. The soybean futures trading on the CBOT saw losses during the early parts of the week but recovered significant portions of them as the week evolved. Rising Chinese demand and drought in Argentina, a major supplier, provided the fuel for the rebound, with the contracts ending Friday’s trading with a weekly 2.1 per cent loss. The wheat futures dropped by 6.1 per cent over the past week, following an upward revision of the estimates for Russian shipments of the grain. The corn contracts posted a weekly decline of 3.6 per cent following losses during the first half of the week.
Freight and Bunker Markets
The Baltic Exchange’s seaborne freight indices recorded considerable losses during the past week, as the markets reopened after the extensive closure over the Christmas and New Year holidays. The dry bulk indices were led lower by the gauge for the Capesizes, which lost a third over the four-day week amid concerns over the near-term strength of the Chinese economy. However, none of the dry bulk vessel segments escaped the rout, with the indicator for the Panamaxes declining by 15.6 per cent. The sub-index for the Supramaxes fell by 21 per cent, and the gauge for the Handysizes declined by 16.7 per cent. As a result, the headline Baltic Dry Index fell by more than 25 per cent during the year’s first week.
Lower crude oil prices and weaker demand contributed to bunker prices retreating during the past week. The VLSFO prices in Singapore declined by around six per cent and ended the week at 587 dollars per tonne, while the losses in Rotterdam and Houston were more measured at two per cent.
The View from the Shipfix Desk
Agricultural commodity prices lost some ground in the past week as weakening global growth rates were seen to weigh on demand. However, an improving supply situation has also contributed to the weaker prices, with wheat being particularly affected. Rising Russian exports following a large harvest last year are providing bearish pressure on the futures. In addition, weekly cargo order volumes for grains loading in Ukraine rose during the past week to the highest levels since the end of November. If the latest development proves sustainable, it could put additional pressure on wheat and corn prices in the near term.
Data Source: Shipfix