By Ulf Bergman
Macro/Geopolitics
The European Commission signalled yesterday that the EU as a bloc might avoid a recession during the coming year. While some individual countries in the bloc may enter recession, the union’s economy is expected to grow by 0.9 per cent this year. The latest projection is an upgrade from the previous estimate of 0.3 per cent growth, which was made in November. The improving outlook comes amid lower energy costs and less pressure on the economy from elevated inflation rates.
Much of today’s focus among investors and economists will be on the release of US inflation data for January. Markets are expecting that the annual rate of inflation slowed down last month compared to December but that it remained elevated at 6.2 per cent. A surprise on the upside would likely force the Federal Reserve to raise interest rates more than expected in the coming months. At the same time, a lower-than-expected reading would indicate that the previous hikes are starting to have an effect.
Commodity Markets
Yesterday’s session proved to be somewhat volatile for crude oil as traders reflected on the impact of the Russian output reduction and prospects of further rate hikes. The Brent futures recovered from initial losses of more than one per cent but retreated again during the latter parts of the session as concerns over supply disruptions waned. However, the April contracts eventually recorded a marginal daily gain of 0.3 per cent and settled at 86.61 dollars per barrel. Today’s trading session has begun in the red amid losses of around half per cent.
European natural gas prices continued to slide on Monday and reached the lowest levels since the end of August 2021, as the end of the winter approaches and the continent’s inventories remain above their seasonal average. However, it was not only softer demand that weighed on prices. The partial resumption of exports from the Freeport LNG terminal in Texas signalled that an end to the disruptions of the trans-Atlantic trade might be in sight, with increasing supplies for the continent. The front-month futures settled at 51.71 euros per megawatt-hour following a 4.2 per cent drop for the day.
After recovering some of the recent losses on Friday, thermal coal prices came under renewed pressure on Monday amid a retreat for natural gas and crude oil. The futures for delivery in Rotterdam next month shed nearly three per cent and settled at 128.50 dollars per tonne, while the Newcastle futures ended the day below 199 dollars per tonne following a 3.5 per cent decline.
Iron ore remained volatile yesterday, with the March futures trading on the Singapore Exchange shedding 3.5 per cent and ending the day at 120.28 dollars per tonne. Renewed concerns over the demand outlook weighed on the prices amid prospects of further monetary tightening around the world. However, the contracts have rebounded in today’s session, with gains of nearly two per cent.
The base metals had a mixed start to the week, with the futures trading on the London Metal Exchange recording both gains and losses at the end of Monday’s trading session. The copper contracts had gained 0.9 per cent as the trading came to an end, while the zinc futures fared even better with a daily advance of 1.8 per cent. In contrast, the aluminium and nickel futures ended the day in the red, with the former shedding 1.1 per cent and the latter dropping by 4.2 per cent.
The grain and oilseed futures trading in Chicago began the new week without any significant fanfare. The wheat and corn March contracts advanced by 0.8 and 0.7 per cent, respectively, while the soybean futures remained broadly unchanged.
Freight and Bunker Markets
The Capesizes maintained the positive momentum from the end of last week on Monday, with the Baltic Exchange’s freight index for the vessel segment advancing by 9.9 per cent. The headline Baltic Dry Index also remained in the black with a 2.3 per cent gain amid only limited losses across the mid and small-sized segments. The freight indicators for the Panamaxes and Handysizes retreated by the smallest of margins, i.e. one index point. The gauge for the Supramaxes recorded a somewhat larger decline at 0.5 per cent.
The Baltic’s clean tanker index maintained the past week’s positive momentum on Monday, with a gain of 7.9 per cent amid solid demand for seaborne transportation of refined products from the US Gulf. The other wet freight indicators had a more quiet start to the new week, with the dirty tanker index shedding 0.2 per cent and the gauge for the LPG carriers retreating by half a per cent. The freight index for the LNG tankers remained unchanged.
The trading in bunker fuel reflected the limited daily gains for crude oil on Monday. The VLSFO prices in Singapore, Rotterdam and Houston gained around three-quarters of a per cent yesterday. For MGO, the gains were minimal in the Asian and European ports, while Houston saw the fuel advance by 0.9 per cent.
The View from the Shipfix Desk
Thermal coal prices have come under pressure in recent weeks amid high volatility and easing global demand as the winter in the Northern Hemisphere is coming to an end. The past six months have also been dominated by changes to the traditional trade flows for the dirtiest of fossil fuels, as European buyers were forced to find alternative sources amid sanctions on Russian imports. At the same time, the Russian coal miners have had to find new customers for their output as one of their traditional markets became off-limits.
While cargo order volumes for Russian coal have been on a downward trajectory in the past year, last month may have ended the development. A sharp rise in orders for discharge in China during January saw aggregate monthly volumes reaching the highest levels since June last year. With European cargo orders virtually nonexistent, China has seen its share of Russian coal exports increase. The new month has also developed in line with recent developments. While unlikely to match January’s readings, cargo order volumes for Russian coal in February nevertheless may buck the past year's trend.
A thaw in diplomatic relations between China and Australia and an increasing focus on economic growth in the world’s second-largest economy has resulted in an easing of the previous restrictions on imports of Australian coal.
Data Source: Shipfix