The BDI bounced back over the past five sessions after a few weeks in the red. The Capesizes provided much of the upward momentum amid a recovery in cargo order volumes for the segment. For the commodities, the past week proved volatile, with energy delivering some of the most significant price moves as concerns over the demand outlook competed with tight supplies.
Macro/Geopolitics
Amid weak Chinese economic data and hawkish statements from the Chair of the Federal Reserve, the US dollar gained considerable ground over the past week. The US dollar index recorded a weekly increase of 0.8 per cent as the head of the US central bank suggested that there could be further interest hikes coming along should circumstances in the world’s largest economy require it. The comments proved bullish for the greenback as many investors had assumed that the Fed was done with hikes for the current cycle. The stronger dollar contributed to additional headwinds for the commodities.
In the week ahead, US inflation data and Chinese industrial production and retail sales will provide additional insights into the state of the world’s two leading economies. The former will see the light of day on Tuesday, while the Chinese data will be published on Wednesday.
Commodity Markets
Despite gains during the second half, crude oil recorded a significant loss for the past week. Concerns over the demand outlook amid weak Chinese economic data and signs of lower US consumption contributed to last week’s negative sentiments. The January Brent futures recorded a weekly loss of 4.1 per cent as they settled at 81.43 per cent on Friday. However, the new week has started in a muted fashion, with the contracts trading near Friday’s close.
European natural gas futures had a volatile week, with prices swinging between sizeable daily gains and losses over the past five sessions. Fears that rising Egyptian LNG imports would put pressure on global supplies and weaker European demand amid high inventoried and mild weather contributed to the changeable conditions. Eventually, the front-month TTF contracts settled at 46.63 euros per MWh on Friday and recorded a weekly loss of 3.1 per cent. The contracts have also continued to decline in today’s trading amid losses of around 2.5 per cent.
The coal futures had a week of mixed fortunes. Higher Asian demand contributed to the Newcastle front-month futures advancing by 3.0 per cent over the past five sessions and settling at 129.50 dollars per tonne Friday. In contrast, the contracts for delivery in Rotterdam next month declined by 3.4 per cent and ended the week at 116.55 dollars per tonne, as lower European natural gas prices weighed on demand.
Despite weak Chinese economic data, iron ore advanced over the course of the past week. Hopes that the Chinese government will provide further stimulus to support growth and propel the world’s second-largest economy out of deflationary conditions contributed to the front-month iron ore futures listed on the SGX advancing by 3.1 per cent over the week. The contracts ended the week at 126.81 dollars per tonne, the highest closing price since the middle of March. The past week’s positive momentum has also carried into today’s trading with gains of around one per cent.
A stronger dollar contributed to headwinds for the base metals last week. Aluminium and copper recorded weekly declines of around two per cent, while nickel shed more than five per cent. In contrast, zinc delivered a weekly gain of approximately 1.5 per cent, but headwinds during the second half of the tempered the bullish sentiments.
The grain and oilseed futures listed on the CBOT had a week with changeable conditions. The wheat contracts for delivery in December recorded a weekly advance of 0.5 per cent, with a downgrade of the outlook for global production by the USDA providing some support. In contrast, the corn futures for delivery in December dropped by 2.8 per cent over the week amid increasing US yields for the crop. The January soybean futures ended Friday’s trading session 0.3 per cent below the previous week’s close.
Freight and Bunker Markets
After two weeks of negative performance, the Baltic Dry Index rebounded over the past five sessions. The headline index rose by 12.4 per cent, with the Capesizes resuming their previous role as the primary providers of upward momentum. The sub-index for the largest vessels surged by 21.4 per cent over the past week as order volumes, especially in the Atlantic basin, improved. The freight rate indicator for the Panamaxes also had a good week, albeit not at par with their larger siblings, as it recorded a gain of 5.7 per cent. The freight rates in the segment benefitted from a moderate improvement in demand and downward pressure on tonnage supply. After a weak start to the week, the Supramaxes recovered during the second half, with their sub-index delivering a 2.2 per cent weekly gain amid tighter tonnage supply. On the other hand, the Handysizes continued to decline last week, with their freight gauge in the red during each of the past five sessions. The segment suffered amid weak order volumes, with its sub-index recording a weekly drop of 6.3 per cent.
The Baltic Exchange’s wet freight indicators had a week of mixed fortunes. The dirty tanker index ended a run of eight weeks in the black as it declined by 5.0 per cent amid concerns over weaker crude oil demand. Despite losses on Thursday and Friday, the clean tankers' gauge increased by 0.6 per cent over the week. For the liquified gas carriers, the freight indicator for LPG extended gains into a third week amid restrictions in the Panama Canal, albeit at a more moderate 1.9 per cent. On the other hand, the index for the LNG tankers recorded a weekly decline of 1.4 per cent.
Developments in the crude oil market weighed heavily on the trading in bunker fuels over the past week. The VLSFO recorded weekly losses of nearly 5.5 per cent in Houston and Rotterdam, while the decline was more limited at 2.2 per cent in Singapore. The trading in MGO fared even worse, with Rotterdam leading the way lower amid a weekly loss of 10.8 per cent. Still, losses for the former fuel were also substantial in Singapore and Houston. The MGO dropped by 9.8 per cent in the former port, while the latter recorded a weekly loss of 7.3 per cent.
The View from the Shipfix Desk
In recent weeks, the Baltic Exchange’s freight index for the Handysizes has been trailing the ones for larger segments by a considerable margin. Last week, the gauge dropped by 6.3 per cent, while the sub-indices for the larger segments were all in the black to a greater or lesser extent. The spot freight rates for the segment also remain around 25 per cent below the levels observed at the same time last year.
Over the past few weeks, global demand for seaborne transportation onboard Handysizes has faced significant pressure. After a brief recovery in early October, weekly cargo order volumes have retreated to around 27 million tonnes over the past month. While there are signs of weakness across all basins, the Atlantic has provided much of the decline, with volumes in recent weeks representing a 20 per cent drop since September. Still, in the Pacific and the Indian Ocean, demand has fallen by around ten per cent.
Freight rates in the Handysize segment have also suffered amid high tonnage supply across the three basins. However, the past week saw a decline in available vessels, which could support a rebound for freight rates should the development extend into the coming weeks. Still, at this stage, any such recovery is likely to be limited as the reduction in vessel supply is generally in the form of a mean reversion.