Macro/Geopolitics
Chinese manufacturing is recovering quickly following the country’s removal of its strict Covid policies. The PMI data for February published earlier today point towards a rapid recovery for Chinese industrial production, with both the official survey from the country’s statistics agency and the Caixin beating market expectations. The official PMI surged to 52.6 last month from 50.1 in January, surpassing expectations of 50.5 by a considerable margin and reaching the highest level in over ten years. The Caixin PMI, which focuses on smaller companies, exited contraction territory with a reading of 51.6, comfortably beating the consensus expectations of 50.2. The official gauge for the non-manufacturing sector, which covers activity in the services and construction sectors, also rose last month.
The solid readings for the Chinese PMIs are providing a boost ahead of next week’s National People’s Congress gathering, where the new official economic growth targets will be presented. While the latest readings were affected by seasonal factors, e.g. reopening of the economy following the Chinese New Year, they nevertheless suggest that the Chinese economy is gathering considerable momentum and the rebound for the country’s demand for commodities may finally materialise in earnest. However, the rebound is unlikely to match what was observed in 2020, as global growth is decelerating and demand for Chinses exports is likely to remain subdued in comparison. Hence, domestic consumption will become even more critical for the Chinese economy.
Commodity Markets
Brent crude oil advanced by 1.7 per cent yesterday and settled at 83.45 dollars per barrel amid rising concerns over global supplies as Russian production is set to decrease in the coming month. The May contracts have swung between gains and losses during today’s trading session, with the stronger-than-expected Chinese PMI temporarily pushing the prices into the black.
European natural gas futures extended Monday’s losses yesterday, as the approaching end to the winter season and high inventory levels weighed on the demand outlook and prices. The April contracts settled at 46.67 euros per megawatt-hour following a 1.6 per cent decline for the day. However, the front-month futures have staged a recovery in today’s session amid gains of around two per cent.
The thermal coal futures also continued to lose ground yesterday amid softer demand. The Newcastle April futures ended the session 1.5 per cent lower at 194 dollars per tonne, while a 1.7 per cent loss for the day saw the contracts for delivery in Rotterdam settling below 146 dollars per tonne.
The iron ore futures for delivery in April listed on the Singapore Exchange recovered some of the losses sustained at the beginning of the week yesterday. The contracts settled at 123.37 dollars per tonne following a half a per cent gain for the day. However, the solid Chinese PMI data have seen the futures gaining more than two per cent during today’s activities.
A weaker dollar during the earlier parts of Tuesday’s trading contributed to gains for several of the base metals yesterday. The copper futures listed on the London Metal Exchange gained 1.8 per cent over the course of yesterday’s trading, while the aluminium and zinc contracts advanced by 0.4 per cent. The nickel futures were the session’s laggards, with a loss of 2.8 per cent for the day.
A combination of a promising supply outlook and concerns that a weaker global economy will reduce demand weighed on the grain and oilseed futures yesterday. The wheat May futures trading in Chicago declined by 0.6 per cent, while the corn and soybean contracts fell by more than two per cent.
Freight and Bunker Markets
The recent development of all Baltic Exchange’s dry bulk indices advancing at the same time extended into a sixth consecutive session yesterday, albeit in a more balanced fashion. The headline Baltic Dry Index increased by 5.9 per cent for a second day in a row, but, unlike the past week, the Capesizes were not the main drivers. The Panamaxes were the day’s top performers, with their freight gauge advancing by 7.9 per cent. The sub-index for the Supramaxes grew by 5.2 per cent, while the Capesizes and Handysizes saw gains of around four per cent.
For the Baltic’s wet freight indices, yesterday’s session proved to be more mixed with the different gauges spread across gains and losses for the day. The dirty tanker index remained on its current upward trend with a daily increase of 3.7 per cent. In contrast, the equivalent for the tankers carrying refined products continued to lose ground amid a 4.6 per cent decline. For the gas carriers, the daily moves were more modest, with the gauge for the LNG freight rates advancing by 1.5 per cent and the LPG charter rates retreating by a marginal 0.2 per cent.
While crude oil prices advanced yesterday, bunker prices experienced a mixed day across the different ports and fuel types. VLSFO prices increased by 2.6 per cent in Houston and declined by 2.3 per cent in Singapore, while remaining broadly unchanged in Rotterdam. The trading in MGO saw prices remaining unchanged in Houston, while prices fell by 2.4 per cent in Rotterdam and advanced by 0.4 per cent in Singapore.
The View from the Shipfix Desk
Following the European ban on imports of Russian coal, the miners have been forced to find alternative markets for their output. The loss of the closest market has seen Russian coal loading in the Baltic Sea travelling longer distances to reach the new export markets. In the past ten months, the Asian markets have become increasingly important for the coal shipped from the ports in the Baltic. While much of the growth for the Asian trade is for the long voyage to China and the Far East, India and the Middle East have also grown in importance since the middle of last year. For the long journey to China and the Far East, larger vessels are also increasingly popular, compared to the historical norm for all voyages.
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