Shipfix-Global Market Update

The Capesizes had another solid week and propelled the Baltic Dry Index higher, while weakness across the other vessel segments provided some offsets. The commodities had a week dominated by losses amid pressures on demand, with grains among the rare winners.

By Ulf Bergman


Macro/Geopolitics

The newsflow in the week ahead looks set to be dominated by events in Israel. While the immediate effects on shipping and commodities are likely to be limited, diplomatic and other developments in the broader region could have longer-term consequences that could affect seaborne trade. Notably, any developments involving Iran, an ally of Hamas, could disrupt the flow of crude oil and LNG through the Strait of Hormuz. In such an event, oil and natural gas would become more expensive, fueling higher global inflation and lower growth. Pressure on global supplies of oil and natural gas could also lead to higher demand for coal, providing support for prices and freight rates.

Beyond geopolitics, the US will release inflation data for September on Thursday, providing additional clues for the timing and size of any future US interest hikes. Also, China will publish inflation and trade data on Friday, delivering further insights into the state of the world’s second-largest economy.

Commodity Markets

Concerns over the US demand outlook and the Chinese holidays contributed to crude oil declining last week. The Brent December futures recorded a weekly decline of 8.3 per cent, ending Friday’s session at 84.58 dollars per barrel. A large part of the weekly loss was realised on Wednesday following the release of weaker-than-expected US demand data. The contacts have begun the new week with gains of around three per cent following the attacks in Israel over the weekend.

Despite a 5.6 per cent gain on Friday, following news that the Australian gas workers will resume their strike, European natural gas prices recorded losses last week. The front-month TTF futures settled at 38.23 euros per MWh on Friday. 8.7 per cent below the preceding week’s close. Friday’s positive momentum has also carried into the new week, with the contracts advancing by more than twelve per cent in the first few hours of trading.

Coal also faced headwinds for much of last week, with the lower European coal prices and the Chinese holidays contributing to lower demand. The November Newcastle futures recorded a weekly loss of 11.5 per cent, ending Friday’s trading at 141.60 dollars per tonne. The contracts for delivery in Rotterdam next month retreated by 7.2 per cent during the past week and settled at 118.75 dollars per tonne on Friday.

Iron ore retreated for much of the past week as the holidays in China weighed on activities. The November futures listed on the SGX recorded a weekly decline of 2.0 per cent, settling at 114.84 dollars per tonne on Friday. The decline has accelerated in today’s trading, with losses exceeding two per cent.

Despite the week ending on a positive note, the base metal futures listed on the LME delivered negative weekly performances as easing Chinese demand weighed on sentiments. The three-month copper futures declined by 2.8 per cent over the course of the week, while the aluminium and zinc contracts shed around five per cent. Nickel was the least bad performer, with a weekly decline of 0.6 per cent.

The grain futures listed on the CBOT were among the minority of commodities advancing last week. The December wheat contracts continued to recover from recent lows, with a weekly gain of 4.9 per cent as demand picked up. The corn futures advanced by 3.2 per cent. In contrast, the November soybean futures declined by 0.7 per cent.

Freight and Bunker Markets

The Capesizes continued to support the Baltic Dry Index last week. The headline index advanced by 13.4 per cent as the sub-index for the largest segment soared by 33.8 per cent. The freight rates in the Capesizes benefited from continued low tonnage supply, especially in the Atlantic basin. In contrast, the mid and small-sized vessels saw their freight rate indicators decline last week. The Panamaxes were the past week’s laggards, with the Baltic’s index for the segment falling by 7.6 per cent, as global order volumes remained weak for a second consecutive week. The gauge for the Supramaxes retreated by 3.4 per cent as demand in the Atlantic and Indian Ocean continued to face headwinds. The Handysizes’ index shed 0.6 per cent.

The Baltic Exchange’s wet freight indices also had a week of mixed fortunes. The gauge for the dirty tankers advanced by 5.3 per cent as demand picked up in the sector. In contrast, sentiments for the clean tankers remained negative amid restrictions on exports of refined products from China and Russia. As a result, the index for the latter vessels declined by 7.7 per cent. However, the freight indicators for the LPG and LNG carriers were the past week’s weakest performers. The index for the former tankers declined by 11.9 per cent, while the latter dropped by 14.1 per cent.

Bunker fuels faced significant headwinds last week as crude oil prices came under pressure. The VLSFO recorded a weekly decline of 5.0 per cent in Rotterdam, while losses were even more significant in Singapore and Houston at 7.0 and 11.2 per cent, respectively. Still, the losses for the VLSFO paled in comparison with what was observed for the MGO. The latter fuel dropped by 12.8 per cent in Singapore, 11.9 per cent in Rotterdam, and 15.3 per cent in Houston.

The View from the Shipfix Desk

After trending higher for around three months, the past two weeks have seen demand for seaborne transportation of US agricultural commodities retreating from the recent high. During the past seven days, the aggregate order volumes for US grains and oilseeds dropped to the lowest volumes since the beginning of August. The past week’s decline represented a thirteen per cent drop in demand compared to the weekly average for August and September.

The drop in ordering activities was primarily the result of falling demand for shipments from the ports in the US Gulf. While aggregate cargo remains high compared to what has been observed for much of the year, the easing demand has contributed to the mid and small-sized vessel segments underperforming the Capesizes over the past few weeks.

Despite an uptick in demand last week, demand for seaborne transportation of US agricultural commodities onboard Panamaxes has fallen by around a third since early August. For the Supramaxes and Handysizes, demand peaked in the middle of September, and volumes have since come under significant pressure. Still, based on previous years, volumes could stage a recovery during the latter parts of the Month.

Data Source: Shipfix