The narrative of the Capesizes propelling the Baltic Dry Index higher came to an end, as the freight rate indicator for the largest vessels retreated into the red for the first time in over a week. Among the commodities, iron ore and base metals faced headwinds amid further woes for the embattled Chinese real estate sector.
By Ulf Bergman
Macro/Geopolitics
The International Monetary Fund delivered its latest assessment of the state of the global economy . The Washington-based organisation said it expects inflation to be higher than previously envisaged and urged the world’s central banks to remain vigilant in their fight against elevated price increases. Global inflation is expected to reach 5.8 per cent in the coming year, an upward revision of 0.6 percentage points from the previous outlook. While the IMF’s growth projection for next year only saw a marginal downward adjustment, the global economy is expected to expand by a subdued three per cent this year and next.
Separately, the IMF highlighted its concerns over the state of the Chinese economy and recommended that the country allow its budget deficit to grow to provide additional packages for growth stimulus. Still, the organisation downgraded its projections for growth in the world’s second-largest economy. The economy is expected to expand by 5.0 per cent, down from the previous forecast of 5.2 per cent. The IMF expects growth to shrink next year to 4.2 per cent.
The IMF’s outlook for the current and subsequent years suggests that commodity prices and demand for seaborne transportation could face headwinds from higher interest rates, a stronger dollar and continued weak growth. However, higher Chinese demand could offset some of those effects if the country follows the IMF’s recommendation to deliver additional stimulus initiatives.
Commodity Markets
After Monday’s substantial gains in the wake of the attacks on Israel over the weekend, crude oil prices stabilised yesterday. The December Brent futures declined by just over half a per cent, settling at 87.65 dollars per barrel, as concerns over supplies subsided. The contracts have continued to trade near yesterday’s close during the early parts of today’s trading.
European natural gas prices surged yesterday as concerns over global supplies rose following the resumption of the strike among Australian gas workers. The front-month TTF futures jumped by 12.5 per cent, ending the day at 49.46 euros per MWh. However, the contracts have reversed course during the first few hours of today’s session, with losses of around three per cent.
Fears that the strike in Australia will affect global natural gas supplies contributed to coal prices rising yesterday. The Newcastle futures for delivery in November rose by 1.7 per cent, settling at 148.35 dollars per tonne, while the contracts for delivery in Rotterdam soared to 130.55 dollars per tonne amid a daily gain of 4.4 per cent.
Iron ore remained under pressure yesterday as the news flow for the beleaguered Chinese real estate sector continued to be grim. The November futures listed on the SGX declined by 1.4 per cent, a sixth consecutive session in the red, settling at 110.78 dollars per tonne, the lowest since the end of August. Still, the contracts have discarded the negative momentum in today’s trading, with gains of nearly two per cent.
The base metals also suffered yesterday amid concerns over the Chinese demand outlook. The three-month copper futures listed on the LME shed one per cent despite a weaker dollar. The aluminium, zinc and nickel contracts ended yesterday’s session around 1.5 per cent below Monday’s close.
Τhe grain and oilseed futures listed at the CBOT continued to face headwinds as abundant supplies from the world’s top producers weighed on prices. The December wheat futures declined by 1.1 per cent, while the corn contracts retreated by 0.7 per cent. The November soybean futures shed 0.4 per cent.
Freight and Bunker Markets
After six days of gains, the Baltic Dry Index retreated yesterday as the Capesizes ran out of steam following days of solid performances. The headline index declined by 0.4 per cent as gains for the Panamaxes and Supramaxes were insufficient to offset losses in the largest segment. The sub-index for the Capesizes fell by 1.8 per cent as rising tonnage supply negated healthy order volumes. The gauges for the Panamaxes and Supramaxes advanced by 1.6 and 1.5 per cent, respectively, as order volumes remained robust following a solid start to the week. However, the Handysizes remained broadly unchanged for the day.
The Baltic’s clean and dirty tanker freight indices benefitted from improving sentiments on Tuesday. The former gauge edged up by 0.3 per cent after an extended run of negative days. The dirty tankers rose for a 22nd consecutive session amid a daily gain of 3.4 per cent. In contrast, the gas carriers faced headwinds on Tuesday. The gauge for the LNG tankers shed 6.5 per cent, while the LPG freight rate indicator shed 0.4 per cent.
The trading in bunker fuels continued to see mixed developments across the world’s leading maritime hubs yesterday. In Singapore, both the VLSFO and MGO retreated on Tuesday. The former fuel declined by 0.8 per cent, while the latter dropped by 2.4 per cent. On the other hand, in Houston, the two fuels ended the session significantly higher than the previous close. The VLSFO gained 5.4 per cent, while the MGO advanced by 2.6 per cent. The trading in Rotterdam was more subdued, with the VLSFO increasing by 0.4 per cent and the MGO retreating by a third of a per cent.
The View from the Shipfix Desk
In the past month, as the Baltic Exchange’s Capesize index has surged by around 165 per cent, the Supramaxes have enjoyed healthy by far from such spectacular gains. The freight rate gauge for the vessel segment has recorded a gain of more than fifteen per cent for the past month. However, the solid reading hides a tale of two parts. Since peaking at a high for the year during the second half of September, the freight rate index has retreated by nearly eight per cent.
Since the middle of September, global cargo order volumes for the Supramaxes have been trending lower from a high of 41 million tonnes. While last week saw a pick-up in activities, mainly fuelled by higher demand in the Pacific basin, the global weekly aggregate remained below what was observed during most of the third quarter. At the same time, tonnage supply increased in the Atlantic and Indian Ocean, further contributing to the recent pressure on spot freight rates in the segment.
Still, last week’s rebound looks unlikely to be a temporary blip and could spell the end of the past weeks’ downward trend. The first two days of the current week are already accounting for more than half of last week’s 32 million tonnes of global aggregate order volumes. Additionally, the new week has seen tonnage supply fall below what was recorded during the same period last week. Hence, freight rates in the Supramax segment may recover some of the losses from recent weeks.
Data Source: Shipfix