Following numerous challenging rehearsals away from the public eye, Beijing seems to be ready at last for another great performance.
"On Thursday, the western hemisphere woke up, with news of Russian invasion of Ukraine spreading out uncertainty in communities as well as markets around the globe. Oil prices surged, with Brent breaching $100 a barrel for the first time since 2014. European stock futures plunged 4 percent as investors dumped riskier assets. US wheat and corn futures rose by their daily trading limits on Thursday, while soybeans reached the highest level since 2012. Gold prices jumped more than 2 percent to their highest in over a year. Furthermore, raising fears that a war in Europe would fuel higher inflation and derail economic growth also had a negative bearing on market sentiment. In this context and with FFA values plunging, the tone in the Atlantic spot market was muted." This was the opening paragraph of Doric's Weekly Insight this day last year. As an immediate effect of the conflict, rising trade uncertainty sent global commodity prices skyrocketing, reporting the biggest weekly rally in more than 50 years. The S&P GSCI index, a barometer of global raw material prices, increased by some 18 percent that week, leaving it on track for the sharpest rise on records, according to Refinitiv data.
In sync, world food commodity prices made a significant leap in March last year to reach their highest levels ever, as war in the Black Sea region spread shocks through markets for staple grains and vegetable oils. The FAO Food Price Index averaged 159.3 points in March 2022, up 12.6 percent from February when it had already reached its highest level since its inception in 1990, according to the Food and Agriculture Organization (FAO) of the United Nations. The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. Food prices shot up when Russian forces blockaded Ukraine’s Black Sea ports, halting shipments of cereals from one of the world’s biggest exporters. Many countries reacted by curbing or stopping food or fertilizer exports in an effort to protect domestic food supplies. Those measures were counterproductive and only drove prices higher, briefly threatening a food crisis in developing countries that depend on imports of food, according to the World Bank. Now, many of those measures have lapsed, and relatively high prices are mainly a reflection of broader global inflation.
Many commodity prices went through the ceiling in the first months of the invasion, but since then the impact of the supply-side disruptions has been largely digested by the markets. The FAO Food Price Index reported an average of 131.2 points in January 2023, down 0.8 percent from December, marking the 10th consecutive monthly decline. With this latest decline, the index has fallen 17.9 percent from the peak it reached in March 2022. The drop in the index in January was driven by declines in the price indices of vegetable oils, dairy and sugar, while those of cereals and meat remained largely stable. In tandem, the S&P GSCI Index recorded a negative performance in January. Energy and livestock were the worst-performing components of the index, while industrial metals and precious metals achieved strong gains. Within energy, the price of natural gas trended downwards during January. As far as industrial metals go, the price of lead fell in January, while zinc, aluminium and copper all achieved robust gains. In reference to the agriculture sector, wheat and cocoa prices moved down in January, while sugar and coffee recorded significant price growth. While the impact of the war on commodity prices has been less than expected at the beginning, it did trigger some profound changes towards energy policy and flow of commodities. According to Refinitiv, Japan and Germany cut seaborne imports of Russian crude oil significantly in 2022, with imports falling 60 percent versus the previous year. Similarly, the US also imported far less Russian crude oil. In sharp contrast, China's imports of Russian crude rose 30 percent, while India's surged over the same period. In the natural gas market, European importers secured alternatives to Russian supplies, dramatically increasing imports of liquefied natural gas from the US.
Against this backdrop, Baltic indices experienced an intense rollercoaster ride during the last twelve months, landing to multimonth lows last week. Setting aside the initial shock from the RussiaUkraine conflict, China has stepped once again in the center stage of the dry bulk theatre, magnetizing market audience. Following numerous challenging rehearsals away from the public eye, Beijing seems to be ready at last for another great performance.
Data source: Doric