By Ulf Bergman
Macro/Geopolitics
Hawkish comments regarding interest rates from the Chair of the Federal Reserve during a testimony to the US Congress led to the dollar gaining considerable ground yesterday. According to the statement, it is increasingly likely that the US central bank will have to raise interest rates higher and faster than previously envisaged as inflation remains persistently high. The more aggressive rhetoric led to many investors anticipating a return to 50 basis point increases in the coming month and supported the US dollar while equities and commodities suffered. Higher interest rates for the world’s largest economy will also increase the likelihood of a recession later in the year.
Commodity Markets
The hawkish statement on interest rates from the Fed’s Chair erased the past week’s gains for crude oil. The Brent May contracts fell by 3.4 per cent and settled at 83.29 dollars per barrel. Today’s early trading has seen the contracts remaining broadly unchanged from yesterday’s close.
European natural gas prices rebounded on Tuesday as the cold spell affecting part of the continent is seen to last longer than initially expected. Also, a medium-term projection for the weather suggested that temperatures in Northwest Europe will remain below average until April. The front-month futures gained 2.9 per cent and settled at 43.37 euros per megawatt-hour. The contracts have also continued higher in today’s trading, with the gains approaching two per cent.
The thermal coal futures faced diverging fortunes yesterday. Higher natural gas prices in Europe supported the contracts for delivery in Rotterdam, with the front-month futures gaining 1.3 per cent to end the day at 117.50 dollars per tonne. In contrast, the Newcastle contracts for delivery next month retreated by 2.9 per cent, settling at 183.25 dollars per tonne as the stronger US currency weighed on demand.
Yesterday, the iron ore futures trading on the Singapore Exchange continued to recover from the losses sustained at the end of last week and on Monday. The April contracts advanced by 2.1 per cent and ended the session just shy of 127 dollars per tonne, as sentiments recovered following disappointments over the Chinese growth target. However, the contracts have only made marginal moves in today’s trading.
The surge for the US dollar following the testimony by the Chair of the Federal Reserve weighed on the base metals during the latter parts of Tuesday’s trading session. The copper futures trading on the London Metal Exchange ended the session 1.8 per cent lower than the previous close, while the aluminium contracts shed 1.3 per cent. The nickel futures declined by 1,2 per cent, while zinc delivered the session’s weakest performance with a 2.6 per cent drop.
The agricultural futures trading on the Chicago Board of trade recorded relatively minor moves during the past trading session. The wheat futures advanced by 0.4 per cent, while the corn contracts went in the opposite direction with a 0.4 per cent decline. The soybean futures shed 0.9 per cent as the stronger dollar weighed on the demand outlook.
Freight and Bunker Markets
The Baltic Dry Index continued to advance on Tuesday, as sentiments in the Capesize segment remained robust. The headline index gained 3.2 per cent, as the sub-index for the largest vessels surged by 10.7 per cent amid a solid start to the week for global ordering activities. However, the bullish sentiments did not extend to the mid and small-sized vessels. The freight rate gauge for the Panamaxes retreated by a marginal 0.1 per cent, while the Supramaxes recorded a third consecutive day in the red following a 1.6 per cent decline. In contrast, the Handysizes recorded a relatively modest gain of 1.2 per cent.
The Baltic’s wet freight indices had another relatively undramatic day on Tuesday. The dirty and clean tanker gauges edged up marginally, while the indicator for the LNG carriers declined by 1.2 per cent, and the LPG freight rates fell by 1.5 per cent.
Despite crude oil prices retreating yesterday, the trading in VLSFO recorded gains in some ports. The low sulphur fuel advanced by 1.6 per cent in Singapore and 1.2 per cent in Rotterdam while remaining unchanged in Houston. In contrast, MGO prices fell across the three shipping hubs. Singapore and Rotterdam recorded half per cent losses over the course of the day, while prices dropped by 1.1 per cent in Houston.
The View from the Shipfix Desk
While European sanctions do not directly target Russian exports of fertilisers, cargo order volumes for the commodity loading in the country’s Baltic ports destined for Europe have nevertheless decreased during the past year. In contrast, cargo order volumes in February for Russian fertilisers bound for Brazil and the east coast of South America have more than doubled , compared to the same month in the past two years.
The past year has also seen increased demand for seaborne transportation of Russian fertilisers from the Baltic Sea to the more distant shores in India and China. In addition, the ports in North America remain an important destination for the shipments from the Baltic Sea. The increasing reliance on the more distant markets has contributed to the aggregate cargo order volumes remaining well above their seasonal norm in the past few months.
Average cargo sizes have been trending higher over the past two years for the Russian fertiliser trade out of the Baltic Sea. During the period, the average size increased from around 20,000 to 30,000 tonnes across all shipments. In contrast, the monthly averages for cargoes bound for India have been volatile, and after remaining high in the past year, they have been under pressure in recent months.
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.