By Ulf Bergman
Macro/Geopolitics
While yesterday’s release of US inflation data for January showed that the rate of price increases in the world’s largest economy is decelerating, it did not slow as much as widely expected. The year-on-year inflation rate of 6.4 per cent last month was lower than the 6.5 per cent reading for December but was higher than the consensus forecast of 6.2 per cent. The higher-than-expected inflation rate is likely to keep the Federal Reserve on the current path of interest hikes, especially against a background of the lowest unemployment since the 1960s. However, albeit minimal, the slowdown should avoid a return to 50 basis point increases, at least for now.
The higher-than-expected US inflation contributed to the US dollar erasing early losses yesterday. The dollar index ended the day almost unchanged and near the highest level since the beginning of January amid the prospects of further monetary tightening.
Commodity Markets
Crude oil prices gave up parts of recent gains during Tuesday’s trading session following news that the US government is planning to release 26 million barrels of oil from its strategic reserves to offset upcoming Russian production cuts. The Brent April futures ended the day at 85.58 dollars per barrel following a 1.2 per cent decline. The contracts have continued to move lower in the early parts of today’s session, with losses of around 1.5 per cent.
European natural gas prices rebounded yesterday, following Monday’s extensive losses. The futures for delivery next month advanced by 1,3 per cent yesterday and settled at 52.39 euros per megawatt-hour. The contracts have also continued to advance in today's trading, with gains of nearly three per cent.
The thermal coal futures experienced mixed fortunes yesterday. The contracts for delivery in North-West Europe next month were supported by rising natural gas prices and gained 2.5 per cent to settle at 132 dollars per tonne. In contrast, the benchmark contracts for the Asian market continued to face headwinds, with the Newcastle contracts for delivery in March shedding 2.1 per cent and ending the day at 195 dollars per tonne.
Iron ore maintained recent volatility yesterday, with the futures trading on the Singapore Exchange recovering some of Monday’s losses. The front-month contracts settled at 122.45 dollars per tonne following a daily gain of 1.7 per cent. The positive momentum has also carried into today’s session, with the futures trading nearly a per cent higher than yesterday’s close.
The base metals generally experienced modest losses on Monday, with only copper ending the day outside the red. The futures for the red metal listed on the London Metal Exchange advanced by 0.1 per cent, while the aluminium contracts retreated by 0.2 per cent. The zinc and nickel futures declined by around half a per cent.
For the grain and oilseed futures listed on the Chicago Board of Trade, Tuesday’s session delivered no drama with only limited losses. The wheat contracts for delivery in March declined by 0.8 per cent, while the corn and soybean futures shed around a third of a per cent.
Freight and Bunker Markets
The Baltic Exchange’s Capesize index took a nosedive yesterday, with the gauge shedding 28.5 per cent amid limited demand and reaching the lowest level since the end of August last year. However, as a testament to the index’s low level, it only translated into an 8.6 per cent drop for the headline Baltic Dry Index amid limited moves for the other vessel segments. The indices for the Panamaxes and Handysizes also had a day in the red, with the former declining by 1.7 per cent and the latter losing 0.7 per cent. In contrast, the freight rate gauge for the Supramaxes recorded a marginal gain of 0.3 per cent for the day.
Tuesday did not produce any significant drama for the Baltic's wet indices, with the freight rates for the dirty tankers and LPG carriers remaining almost unchanged. The gauge for the clean tankers continued to gain ground, but the 0.6 per cent gain failed to match the recent days' performances. The indicator for the LNG freight rates provided the session’s most significant move, with a 1.4 per cent decline.
The weaker crude oil prices contributed to headwinds for the VLSFO trade, with the vessel fuel retreating in the world’s major ports. The low sulphur fuel saw a decline of 0.6 per cent in Singapore. However, losses were more significant in Rotterdam and Houston, with prices in the former port falling by 1.5 per cent and 1.2 per cent in the latter. For MGO, the day developed differently, with gains in both Singapore and Rotterdam. The marine gas oil gained 1.2 per cent in Rotterdam and 0.3 per cent in Singapore, while the trading in Houston recorded a loss of 0.4 per cent for the day.
The View from the Shipfix Desk
While Indian iron ore export volumes are a far cry from what the giants of the trade, Australia and Brazil, ship annually, the country nevertheless remain a significant producer of the steelmaking ingredient. Normally, the country ranks somewhere in the middle of the world’s top ten ranking of producers. However, during large parts of the past year, export volumes dropped significantly, with monthly cargo order volumes reaching some of the lowest levels on record amid higher export taxes and weaker demand from Chinese buyers.
Nevertheless, Shipfix’s cargo order volumes for iron ore loading in Indian ports have shown a considerable improvement in recent months. The aggregate volumes for December and January were at the highest levels since the second quarter of 2020, with average cargo sizes stabilising above 50,000 tonnes. The current month also appears to be on course for yet another strong reading, with cargo order volumes potentially matching the past two months. The forward-looking nature of the data set suggests that Chinese imports of Indian iron ore will rise in the coming months.
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