By Ulf Bergman
Macro/Geopolitics
Yesterday, the US currency dropped to its lowest level since the middle of February amid a 0.4 per cent decline for the dollar index. An expectation among inventors that the Federal Reserve will adopt a more cautious approach for its fight against high inflation amid the ongoing turmoil in the global banking sector weighed on the US currency. While the travails of the financial industry will add to the uncertainty over global growth rates and, by extension, the demand outlook for commodities, the weaker dollar is likely to offset some of the negative impacts.
Commodity Markets
The crude oil futures ended Monday’s session in the black and reversed some of the past week’s losses, as the improving demand outlook for China outweighed the adverse effects of the turmoil in the global banking sector. The Brent May futures recorded a daily gain of 0.8 per cent and settled at 73.54 dollars per barrel. Following losses during the early stages of today’s session, the contracts have reversed course and are trading around one per cent above yesterday’s close.
European natural gas prices remained under pressure during the week’s first session amid milder weather across the continent and robust inflows of seaborne LNG. The front-month futures settled at 39.33 euros per megawatt-hour, the lowest level since July 2021, following a daily decline of 8.2 per cent. Today’s trading has seen the recovery of some of yesterday’s losses amid gains of nearly 1.5 per cent. On the other side of the Atlantic, the US front-month contracts shed 4.7 per cent on Monday amid milder weather and a well-supplied market.
Thermal coal also began the week in the red as lower gas prices and milder weather in the Northern Hemisphere weighed on demand. The Newcastle futures for delivery next month retreated by 0.6 per cent to 174 dollars per tonne, while the European front-month contracts fell by 2.3 per cent to 124 dollars per tonne.
Iron ore prices came under pressure yesterday as high pollution levels in Tangshan, China’s leading steel production hub, triggered an emergency curb of production. In addition, a fresh warning from the country’s economic planning agency over what it sees as inflated prices for the steelmaking ingredient weighed on sentiments. The front-month futures listed on the Singapore Exchange fell by four per cent and ended the session at 125.50 dollars per tonne. The contracts have also continued to retreat in today’s trading amid losses of around 1.5 per cent.
The base metals had a mixed first session of the week, as a weaker dollar and higher risk aversion among traders provided conflicting signals. The copper futures listed on the London Metal Exchange advanced by 1.4 per cent over the course of yesterday’s trading session. In contrast, the zinc and nickel contracts retreated by 0.3 and 2.4 per cent, respectively, while aluminium remained broadly unchanged for the day.
The wheat and corn futures trading in Chicago retreated yesterday following the news over the weekend that the agreement that enables Ukraine to export its grans across the Black Sea had been extended. The wheat contracts for delivery in May declined by 1.4 per cent, while the corn futures shed 0.2 per cent. In contrast, the soybean futures recorded modest gains of 0.6 per cent on Monday amid concerns over Argentinian supplies.
Freight and Bunker Markets
The new week began with the Baltic Dry Index returning to positive territory, but in the context of recent daily moves, the gain was modest at 0.5 per cent. A negative performance for the Panamaxes contributed to the limited gains for the headline index, while the freight rate gauges for the other vessel segments advanced on Monday. The sub-index for the Capesizes rose by 1.7 per cent, while the indicators for the Supramaxes and the Handysizes increased by 0.8 and 1.3 per cent, respectively. In contrast, the Panamax sub-index declined by 1.5 per cent.
The Baltic Exchange’s wet freight indices delivered a mixed start to the week. The gauge for the dirty tankers maintained the past week’s positive momentum and produced a two per cent increase on Monday as lower oil prices boosted demand. On the other hand, the gauge for the tankers carrying clean petroleum products shed a marginal 0.3 per cent. The freight gauge for the LPG carriers also began the week in the red amid a 1.3 per cent decline, while the index for the LNG freight rates remained unchanged.
Despite the marginal advance for the crude oil prices on Monday, the trading in marine fuels recorded losses during the week’s first day. VLSFO prices in the world’s major ports made substantial retreats yesterday. Singapore led the way south amid losses of 3.5 per cent, while the fuel declined by 2.1 per cent in Rotterdam and by 1.7 per cent in Houston. The trading in MGO saw somewhat smaller losses. The fuel retreated by around 1.5 per cent in Singapore and Rotterdam and by half a per cent in Houston.
The View from the Shipfix Desk
In the past five weeks, cargo order volumes for agricultural commodities loading on the east coast of South America have come off from the highs recorded during January. However, given the forward-looking nature of the cargo order data, it reflects the advancing harvest season in the Southern Hemisphere.
Asia, and in particular China and the Far East, remains the destination for a large part of the shipments. Since the beginning of the year, China and the Far East have accounted for, on average, a quarter of the weekly volumes. This trade is also dominated by larger cargo sizes, with the average order topping 60,000 tonnes. In contrast, shipments to the rest of the world are typically around 40,000 tonnes. Hence, the development of falling order volumes bound for China and the Far East could weigh on demand in the mid-sized vessel segments. On the other hand, the decreasing demand for seaborne transportation from Brazil and Argentina to the rest of the world is more likely to affect the smaller vessels.
