In line with the narrative for much of the past week, the Capesizes continued to fuel gains for the Baltic Dry Index yesterday, while the smaller segments provided limited headwinds. Among the commodities, iron ore and coal faced headwinds amid the holidays in China.
By Ulf Bergman
Macro/Geopolitics
The US economy continues to surprise on the upside, with labour market and PMI data beating expectations in the past two days. While the PMI for the US manufacturing sector failed to escape the contraction territory in September, the reading of 49 was nevertheless better than the 47.6 recorded in August. In addition, a sub-measure for employment indicated that the sector is likely to increase headcount for the first time in four months.
A higher-than-expected number of new job openings in August also supported the bullish outlook for hiring. Data released yesterday showed that the number of new positions rose by 690,000 to 9.6 million in August, despite the efforts by the Federal Reserve to cool the US economy.
The better-than-expected data contributed to the US currency strengthening over the past two days, with the dollar index reaching its highest level since November during Tuesday’s session as higher interest rates are becoming increasingly likely.
Commodity Markets
Crude oil only recorded minor moves yesterday as traders awaited the outcome of today’s OPEC meeting. The December Brent futures edged up by 0.2 per cent, settling at 90.92 dollars per barrel. Today’s early trading has seen the contracts retreating by around one per cent.
European natural gas prices continued to face headwinds on Tuesday as concerns over supplies continued to fade. The front-month TTF futures declined by 6.0 per cent, ending the session just below 37 euros per MWh. However, forecasts of colder weather across the continent have seen the contracts advancing by around one per cent in the first few hours of today’s trading.
Coal also remained under pressure yesterday as lower European natural gas prices and Chinese public holidays weighed on demand. The November Newcastle futures declined by 4.3 per cent, ending the session at 149.35 dollars per tonne. In Europe, the contracts for delivery next month in Rotterdam fared even worse, settling at 118.75 dollars per tonne after a daily decline of 5.0 per cent.
Iron ore gave up Monday’s gains and more during yesterday’s trading session as the absence of many Chinese actors weighed on demand and prices. The November futures listed on the SGX recorded a daily loss of 1.3 per cent, ending the day at 116.67 dollars per tonne. Today’s trading has seen the contracts retreating further, with the losses exceeding one per cent.
The base metals retreated on Tuesday after also beginning the week mostly in the red amid weaker demand from China. The three-month copper futures listed on the LME declined by 0.6 per cent, while the aluminium and zinc contracts recorded even more significant losses at 1.3 and 3.8 per cent, respectively. In contrast, the nickel futures ended the day only marginally below the previous close.
After a few sessions of volatility, the grain and oilseed futures listed on the CBOT experienced calmer conditions on Tuesday. The December wheat futures recorded a daily gain of 0.7 per cent, while the corn and soybean contracts shed around 0.3 per cent.
Freight and Bunker Markets
The dry bulk freight market remained divided yesterday. While the Baltic Dry Index advanced for a second consecutive session on Tuesday, the Capesizes remained the sole contributors to the positive performance. The headline index rose by 2.5 per cent on the back of a 6.2 per cent advance for the sub-index for the largest vessels. The Capesizes benefitted from a drop in available vessels. In contrast, the mid and small-sized segments had yet another day in the red. The freight rate indicator for the Panamaxes retreated by 1.7 per cent as order volumes softened compared to a week ago. The Supramaxes saw their sub-index decline by 1.0 per cent, a seventh consecutive session in the red, while the Handysizes shed 0.4 per cent.
The Baltic’s wet freight indices were also mainly in the negative territory on Tuesday, with the gas carriers facing the stiffest headwinds. The gauges for the LPG and LNG tankers declined by around eleven per cent, while the clean tanker index fell by 0.4 per cent. On the other hand, the dirty tankers recorded modest gains, with their freight rate indicator advancing by 0.4 per cent.
Despite the limited price moves in the crude oil markets, the trading in bunker fuels saw declines across the world’s major ports. VLSFO declined by 1.0 and 1.2 per cent in Singapore and Houston, while losses in Rotterdam were more modest at 0.6 per cent. However, the trading in MGO saw yesterday’s most significant losses. The latter fuel declined by 3.2 per cent in Singapore, 2.7 per cent in Singapore, and 2.3 per cent in Houston.
The View from the Shipfix Desk
After peaking in the middle of September, sugar prices have fallen by around eight per cent over the past two weeks. As a result of the recent drop, the March sugar #11 futures have returned to the levels seen at the end of August. Still, despite the recent retreat, sugar prices remain at the highest levels for around twelve years amid pressure on global supplies.
The recent decline for the sugar futures followed several weeks of elevated cargo order volumes for the commodity. Solid demand for seaborne transportation of the sweetener from Brazilian port was chiefly responsible for the surge in volumes, as exports from India remained affected by shipping restrictions. However, the price decline may prove to be short-lived, as cargo order volumes have been trending lower in recent weeks. Global aggregate demand fell to one of the year's lowest levels last week. Hence, declining global supplies may see sugar prices recover from recent losses in the near future.
Despite the downward trajectory for cargo order volumes for sugar loading in Brazil over the past few weeks, the average cargo size has remained stable at around 40,000 tonnes since the middle of August. As a result, the lower volumes will weigh on freight rates in the smaller segments.
