By Ulf Bergman
Macro/Geopolitics
Chinese exports dropped by 6.8 per cent during the year’s first two months compared to the same period last year. While the decline was an improvement on December’s reading and less bad than many economists had expected, it still highlights the headwinds the Chinese economy faces amid lower demand globally for its exports and the increasing importance of the domestic economy for growth. The country’s imports also fell during the past two months and were 10.2 per cent lower than a year ago. The decline was far more significant than markets had expected, but rather than being a reflection of weak domestic demand, it was mostly the result of a weaker dollar and lower commodity prices. As a result, the Chinese trade surplus grew to nearly 117 billion dollars, well above the consensus expectations.
Commodity Markets
Crude oil was among the few commodities that advanced yesterday, but the gains were nevertheless minor. The Brent May futures increased by 0.4 per cent and ended the session at 86.18 dollars per session. While a weaker dollar and tight global supplies provided support for the prices, the lower-than-expected Chinese growth target tempered sentiments. In contrast, the contracts have recorded marginal losses in today's early trading.
The European natural gas futures extended losses into a third consecutive session yesterday, with the front-month contracts retreating by 6.3 per cent and settling at 42.15 euros per megawatt-hour. The approaching end of the winter continued to weigh on demand and prices. However, the contracts have reversed course in today’s early trading amid gains of nearly one per cent.
The thermal coal futures maintained Friday’s negative momentum during the new week’s first session as lower natural gas prices weighed on the demand outlook. The Newcastle futures for delivery in April declined by 3.4 per cent and settled at 189 dollars per tonne, while the front-month contracts for delivery in Rotterdam fell by 8.1 per cent to end the day at 116 dollars per tonne.
The conservative growth target for Chinese growth weighed on iron ore prices on Monday, with the April futures listed on the Singapore Exchange retreating by 0.9 per cent and settling at 124.30 dollars per tonne. However, the contracts have recovered in today’s trading with gains of more than two per cent.
The Chinese announcement on growth also affected the base metals, and, combined with a weaker dollar, the futures trading on the London Metal Exchange ended the day in the red. The copper and nickel contracts retreated by 0.7 per cent over the course of the day, while aluminium closed one per cent lower. The zinc futures contributed with yesterday’s weakest performance amid a 1.5 per cent decline.
A continued good global supply situation weighed on the wheat futures trading in Chicago yesterday, with the April contracts shedding 1.9 per cent. The corn futures for delivery next month also declined, but to a lesser extent at 0.4 per cent. In contrast, hopes of a rebound in Chinese demand contributed to the soybean futures moving 0.7 per cent higher.
Freight and Bunker Markets
Friday’s narrative for the dry bulk freight market remained broadly intact on Monday, with the Capesizes largely responsible for the headline Baltic Dry Index gaining 3.9 per cent. The largest vessels were the day’s star performers, with the Capesize sub-index gaining 11.2 per cent amid a strong start to the week for cargo order volumes. The Panamaxes and Handysizes were also in the black yesterday, but gains were fairly modest compared to their larger siblings. The freight rate gauge for the former advanced by 1.1 per cent, while the index for the latter increased by 1.7 per cent. In contrast, the indicator for the Supramaxes retreated by 0.8 per cent.
The Baltic’s wet indices had an uneventful start to the week, with only minor moves. The dirty tanker index and the gauge for the LNG carriers were broadly unchanged for the day, while the indicators for the clean and LPG tankers retreated by around one per cent.
The gains in the crude oil markets contributed to bunker fuel prices moving higher yesterday. The VLSFO advanced by one per cent in Singapore, while Houston and Rotterdam recorded gains of two and 1.5 per cent, respectively. In the market for MGO, the performance was even stronger, with prices in Houston leading the way higher amid gains of 2.8 per cent. The fuel gained one per cent in Rotterdam and 1.7 per cent in Singapore.
The View from the Shipfix Desk
Thermal coal prices remain under pressure, with the futures trading at levels last seen over a year ago as fears over energy shortages amid disruptions in the wake of the war in Ukraine fade. However, sanctions on Russian coal have forced many buyers to find alternative suppliers of the fossil fuel. South Africa was early on touted as an alternative source of coal for Europe. There was also a considerable increase in cargo orders for European ports a year ago, which briefly threatened India’s position as the main market for seaborne shipments of South African coal. However, as the supply situation for European natural gas has improved and coal inventories in the continent have filled up, the European portion of the cargo order volumes have declined.
In the past two months, India has reclaimed its previously dominant position as the leading buyer of South African coal. At the same time, total cargo order volumes have declined from the highs recorded during the second half of last year. However, the drop in volumes is broadly in line with previous years’ seasonal patterns.
Average cargo sizes for shipments bound for India have remained relatively stable over the past few years. In contrast, the average has been trending higher for the rest of the world, significantly since the shipments to Europe accelerated. However, the decline in cargo orders for Europe has led to the reversal of the trend, highlighting that larger vessels have been used in the European trade.
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