A late rebound for the Capesizes contributed to the BDI advancing by more than fifteen per cent last week, with pressure on tonnage supply chiefly responsible for the turnaround. The week was a tale of mixed fortunes for the commodities as a US public holiday put pressure on market activities.
By Ulf Bergman
Macro/Geopolitics
A slowdown in Chinese industrial profits during October has reignited investors’ concerns that the Chinese recovery remains sluggish. According to data released earlier today, profits in China’s industrial sector grew by 2.7 per cent year-on-year in October. Deflationary pressures in the Chinese economy have seen profit growth trending lower over the past three months, with the latest reading well below the 11.9 per cent recorded in September and the 17.2 per cent seen in August. The weak profit growth has contributed to weakness across the world’s equity markets and headwinds for iron ore.
In the week ahead, on Thursday and Friday, we will see the release of PMI data for the US, China, and the euro area, providing further information on the state of the world’s leading economies. In addition, Thursday’s publication of data for US consumer spending will be closely watched by investors for further clues regarding the future direction of US interest rates.
Commodity Markets
After gaining ground during the first half of the week, the announcement of a delay to an OPEC+ meeting amid Saudi Arabian grievances over other members’ lack of output reductions offset the early advances. The January Brent futures shed 1.0 per cent on Friday and ended the session at 80.58 dollars per barrel, broadly in line with the previous week’s close. The continued favourable supply outlook has seen the contracts declining by around one per cent in today’s early session.
European natural gas prices had a volatile week as higher demand and well-stocked inventories competed for traders’ attention. Eventually, the January TTF futures ended Friday’s trading at 47.49 euros per MWh, a weekly gain of 2.3 per cent, as colder weather supported prices. Still, the volatility narrative has carried into the new week, with the contracts shedding around four per cent so far in Monday’s trading.
Coal prices increased last week amid more robust demand in the Northern Hemisphere as the heating season gathers momentum. The January futures for delivery in the port of Newcastle in January recorded a weekly gain of 1.4 per cent as they settled at 129.40 dollars per tonne on Friday. The contracts for delivery in Rotterdam fared even better as they ended the week just above 117 dollars per tonne, 8.0 per cent above the previous Friday’s close.
Iron ore recorded a fifth consecutive week of gains as the Chinese demand outlook continued to strengthen amid more support measures for the country’s economic growth and beleaguered property sector. The January futures for the steelmaking ingredient listed on the SGX advanced by 4.5 per cent over the past week, ending Friday’s session at 132.34 dollars per tonne. However, the new week has begun on a negative note, with the contracts shedding nearly one per cent.
The base metals had a week of mixed fortunes, with copper delivering the most robust performance. The futures for the red metal listed on the LME advanced by 2.0 per cent over the week, with more Chinese fiscal support for the world’s second-largest economy supporting the bullish sentiments. On the other hand, the aluminium and zinc contracts ended the week broadly unchanged after swinging between limited gains and losses over the past five trading sessions. Nickel proved to be the week’s laggard with a decline of 4.5 per cent, extending losses into a fifth consecutive week.
The grain and oilseed futures listed on the CBOT recorded only limited price moves during the past week as US Thanksgiving celebrations weighed on trading volumes. The March wheat futures rose by a quarter of a per cent over the week, while the corn contracts retreated by 0.6 per cent. The January soybean contracts declined by 0.7 per cent.
Freight and Bunker Markets
A strong recovery for the Capesizes on Thursday and Friday saw the Baltic Dry Index delivering a third week of double-digit gains. The headline index rose by 15.5 per cent over the past week, with all segments solidly in the black. Still, the Capesizes delivered the week’s most robust performance. After a weak start to the week, a recovery in order volumes and low tonnage supply saw the indicator for the largest vessels soaring by 22.5 per cent over the past five sessions. The freight index for the Panamaxes recorded steady gains throughout the past week, adding up to 10.1 per cent on Friday amid some pressure on tonnage supply. Weaker supply also supported spot freight rates in the Supramax and Handysize segments. The indicator for the former segment rose by 6.1 per cent, while the latter surged by 11.9 per cent.
The Baltic Exchange’s wet freight indicators faced considerably more headwinds than their dry equivalents. The gauge for the dirty tankers declined by 6.4 per cent as weaker crude oil demand weighed on sentiments. The index for the clean tankers edged up by 0.4 per cent for the week after most of the early gains were given up during the second half. The indicators for the liquified gas carriers experienced a reasonably quiet week. The gauge for the LNG tankers ended the week broadly unchanged, while the LPG freight index recorded a weekly decline of 0.9 per cent.
While the trade in bunker fuels across the world’s leading ports mostly delivered losses on Friday, prices advanced over the past week as a whole. In Singapore, the VLSFO and the MGO recorded weekly gains of 2.9 and 2.0 per cent, respectively. The two fuels saw a more significant weekly divergence in Rotterdam, with the VLSFO edging up by 0.2 per cent and the MGO gaining 3.7 per cent. However, the trading in Houston delivered weekly gains of less than half a per cent.
The View from the Shipfix Desk
The past week’s 22.5 per cent surge for the Baltic Exchange’s Capesize index was the result of a late recovery, as the early parts of the week saw the gauge dip into the red amid weak demand in the Atlantic. Still, the late rebound in cargo ordering activities was insufficient to match the preceding week’s order volumes, and the surge in spot freight rates was mainly due to a drop in available vessels across all major basins.
While the past week failed to match the global cargo order volumes for Capesizes recorded during the preceding one, the aggregate was broadly in line with the weekly average for the year so far. In recent weeks, the spot demand for seaborne transportation onboard Capesizes has been supported by a greater interest in shipping coal. Since the middle of October, weekly cargo order volumes for coal have increased by nearly 150 per cent to 2.7 million tonnes. However, while the recent weekly readings remain above the average for the year, they fail to match the levels seen in September. At the same time as coal has seen recovery, spot cargo order volumes for other commodities have been trending somewhat lower over the past two months.
Should the recent upward trend in demand for seaborne transportation of coal remain in place, it will provide further support for Capesize freight rates. However, the seasonal patterns of cargo order volumes for coal and other commodities suggest that the rebound may run out of steam as we enter the year's final month.
Data Source: Shipfix