By Ulf Bergman
Macro/Geopolitics
In light of the collapse of the Silicon Valley Bank, the latest release of US inflation data did not make the Federal Reserve’s job any easier. While prices generally rose in line with expectations during the past month, the core inflation was marginally higher than in January and also somewhat higher than anticipated. Hence, the US central bank’s interest rate-setters will have to contend with both high inflation rates and a financial system under some stress when they meet next week. Despite the persistently high inflation, a return to 50 basis point hikes looks unlikely at this stage, and either a pause in the monetary tightening or a 25 basis point increase is the probable outcome of next week’s gathering.
According to data released today, Chinese industrial production benefited from the removal of the country’s strict zero-Covid policies during the first two months of the year but fell somewhat short of consensus projections. The industrial output expanded by 2.4 per cent during January and February compared to the same period last year, with manufacturing quickening the pace while mining and utilities provided some headwinds. The markets had expected that the reading would reach 2.6 per cent, and the lower reading suggests that the Chinese economy is facing some headwinds amid a slow recovery for domestic demand.
Commodity Markets
The continued travails of the US banking sector weighed on sentiments in the crude oil markets yesterday, with the Brent May futures retreating by 4.1 per cent and settling at 77.46 dollars per barrel. The contracts rebounded in today’s early trading with gains of around one per cent, following OPEC’s upward revision of its projections for Chinese demand. However, the gains have since been reversed, with the contracts trading nearly two per cent below yesterday’s close.
European natural gas prices took a tumble yesterday and, combined with Monday’s losses, nearly offset Friday’s extensive gains. The front-month contracts dropped by 10.9 per cent and settled at 44.19 euros per megawatt-hour amid a return to milder weather in the continent. The contracts recovered some of yesterday’s losses in today’s initial trading amid gains of around 1.5 per cent but have since reversed course and retreated into the red.
The lower natural gas prices weighed on thermal coal prices on Tuesday. The Newcastle April futures declined by 2.3 per cent and settled at 187 dollars per tonne amid weakening demand in the wake of milder weather in the Northern Hemisphere. The contracts for delivery in North-West Europe next month recorded more modest losses for the day but nevertheless retreated by one per cent and ended Tuesday’s session at 137.35 dollars per tonne.
After Monday’s significant gains amid hopes of a recovery in Chinese demand, the iron ore futures listed on the Singapore Exchange had a quiet session yesterday. The April contracts advanced by a marginal 0.2 per cent and settled at 131.72 dollars per tonne. However, in light of the somewhat disappointing Chinese industrial data, the contracts have shed around half a per cent today.
The base metals futures trading on the London Metal Exchange began yesterday’s session strongly, but most of them nevertheless ended the day in the red as the US dollar staged a partial comeback. The three-month copper contracts ended the day 1.1 per cent below Monday’s close, while the zinc and nickel futures recorded daily losses of 1.3 and 0.4 per cent, respectively. In contrast, the aluminium contracts managed to hold on to some of the early gains and ended the session with a 0.8 per cent gain for the day.
The wheat and corn futures listed on the Chicago Board of Trade advanced yesterday as talks over an extension of the Black Sea Grain Initiative continued. While it looks likely that the agreement will remain in place, Russia is only prepared to agree to a 60-day extension rather than the 120 days previously. Hence, the supply outlook for grains has become more uncertain. As a result, the April wheat futures advanced by 1.7 per cent yesterday, while the corn contracts gained 1.2 per cent. In contrast, the soybean futures remained broadly unchanged.
Freight and Bunker Markets
The Baltic Exchange’s dry bulk freight rate gauges continued to defy gravity yesterday, with all segments advancing for a fourth consecutive session. After a few days of increases in the single-digit territory, the Capesizes recorded extensive gains yesterday, with their sub-index advancing by 15.9 per cent amid another day of solid ordering activities. The strong performance for the largest vessels contributed to the headline Baltic Dry Index soaring by 8.3 per cent. The mid and small-sized vessel segments also recorded healthy gains on Tuesday. The freight rate indicator for the Panamaxes increased by 3.8 per cent, while the gauges for the Supramaxes and Handysizes both gained 2.3 per cent.
Tuesday passed by with far less drama for the Baltic's wet freight indices. The indicators for the dirty tankers and the LNG carriers remained broadly unchanged for the day, while the LPG freight rates advanced by 1.4 per cent. The clean tanker index delivered the session’s best performance, with a gain of 4.2 per cent as it continued to recover.
The retreating crude oil prices put pressure on the bunker fuel markets yesterday, with Tuesday’s trading in VLSFO in the world’s leading ports ending in the red. Rotterdam led the way lower amid a daily decline of 1.8 per cent, while prices for the fuel retreated by 1.3 per cent in Singapore and one per cent in Houston. For the MGO, the past day was more mixed, with prices advancing by 2.1 per cent in Houston while declining by more than one per cent in Singapore and Rotterdam.
The View from the Shipfix Desk
While Swedish iron ore production is considerably lower than the global heavyweights of Australia and Brazil, it nevertheless ranks somewhere in the middle of the top ten for the world’s largest exporters of the commodity. One unique aspect of the Swedish seaborne iron ore exports is that most of it is not loaded onto vessels in the country’s own ports but is shipped through the Norwegian port of Narvik. Hence, the first leg of the transportation is by rail across the mountain range that separates the two Scandinavian countries. The advantage of this arrangement is that the port in Norway is ice-free all year and can handle large vessels, while the nearest Swedish port in the Baltic Sea is challenged on both counts. In addition, the voyage through the Baltic Sea covers a greater distance. However, the high-altitude rail track remains a bottleneck, and any problems, such as derailments, will affect the flow of Swedish iron ore.
Much of the Swedish iron ore is sold to customers in Europe and is normally shipped on medium-sized vessels for those destinations. However, larger vessels are typically used for shipments to more distant shores.
Despite a train derailment during the past week, March has seen a sharp increase in ordering activities for iron ore loading in Norway and the current month appears to be on track to beat previous highs. Much of the surge in order volumes are for cargoes larger than 85,000 tonnes, suggesting that customers in distant markets, such as Africa and the Middle East, are having a greater appetite for Swedish iron ore. Hence, the development is providing additional support for the freight rates for the larger vessels.
Data Source: Shipfix