By Ulf Bergman
Macro/Geopolitics
According to data released yesterday, the Chinese economic recovery is in full swing. The world’s second-largest economy grew by 4.5 per cent during the first quarter of the year compared to the same period last year. The pace of the growth was the highest in a year and exceeded the consensus expectation of a four per cent expansion. The stronger-than-expected economic activity during the first three months of the year was, to a great extent, fuelled by a surge in consumer spending, which in March alone rose by 10.6 per cent compared to the same month last year. In contrast, industrial production and investments during the past month fell short of expectations.
China’s economic recovery is widely expected to gather momentum in earnest during the current quarter, with base effects due to last year’s lockdown of Shanghai contributing. However, the robust growth during the beginning of the year is likely to have been welcome news for the Chinese leadership. Nevertheless, the relative weakness for the industrial production and investments could weigh on sentiments. While unlikely to be sufficient to trigger additional stimulus measures, slowing global economic growth and lower demand for Chinese exports will maintain the importance of Chinese consumers continuing to spend.
Commodity Markets
A stronger dollar and the prospects of additional interest rate hikes weighed on crude oil prices yesterday. The Brent June contracts retreated by 1.8 per cent and settled at 84.76 dollars per barrel. However, the stronger-than-expected Chinese growth contributed to the contracts reversing course in today’s early trading, but the gains have since been erased.
European natural gas prices advanced yesterday as demand picked up with the arrival of colder weather across parts of the continent and lower production of wind power. The front-month futures recorded a daily gain of 2.4 per cent on Monday and settled at 42.13 euros per megawatt-hour. The contracts have also continued higher during the first hours of today’s trading.
The Newcastle coal futures for delivery next month ended a run of negative daily returns yesterday, with a gain of 1.1 per cent to settle at 183 dollars per tonne. The contract for delivery in Rotterdam in May remained broadly unchanged at 124.25 dollars per tonne.
The iron ore futures listed on the Singapore Exchange had a second consecutive session with only marginal price gains. The May contracts edged up by 0.2 per cent yesterday, ending the trading session at 116.77 dollars per tonne. However, the contracts have gained nearly a per cent in today’s trading following the release of the Chinese growth data.
The continued rebound for the US dollar weighed on most base metals yesterday. The three-month copper futures listed on the London Metal Exchange recorded a daily decline of 0.7 per cent yesterday, while the aluminium and zinc contracts shed 0.3 and 0.9 per cent, respectively. In contrast, the nickel futures went against the flow and advanced by 2.4 per cent over the course of the day.
The continued uncertainty of the future of the Black Sea Grain Initiative supported wheat and corn prices yesterday. The wheat futures for delivery in May rose by 2.1 per cent, while the corn contracts gained 1.5 per cent. The front-month soybean futures ended yesterday’s session 1.1 per cent higher.
Freight and Bunker Markets
Continued weakness for the two largest dry bulk vessel segments weighed on the Baltic Dry Index yesterday. The headline index declined by 1.6 per cent, as the sub-indices for the Capesizes and Panamaxes fell by 2.6 and 1.6 per cent, respectively. The poor performance for the former segment was due to limited ordering activities, while the latter continued to suffer amid high tonnage supply. The smaller segments had a better start to the week, with the freight rate indicators for the Supramaxes and Handysizes gaining 0.2 and 0.3 per cent, respectively.
The freight rate gauges for the tankers had a mixed start to the week. The Baltic’s dirty tanker index continued to decline amid lower demand in the wake of the announced output cut by OPEC+. The indicator retreated by 1.9 per cent and extended its run of negative days into a sixteenth session. In contrast, the indicator for the clean tankers advanced by 3.2 per cent. The LPG carrier index increased by 0.6 per cent, while the LNG freight rates remained unchanged.
Bunker fuel prices had a generally quiet session on Monday. The trading in VLSFO only recorded marginal gains in Singapore and Houston while remaining unchanged in Rotterdam. For MGO, the prices retreated by 0.5 per cent in Singapore and 0.2 per cent in Rotterdam while advancing by 3.8 per cent in Houston.
The View from the Shipfix Desk
The better-than-expected Chinese growth during the first quarter of the year puts the world’s second-largest economy on track to reach the year’s rather conservative growth target of five per cent. However, disappointing industrial production during March suggest that the road ahead may not be without its challenges for the Chinese economy. Hence, the country’s appetite for imported commodities may not be as strong as when China reopened after the first round of lockdowns in 2020.
Copper’s central role in modern manufacturing makes the metal a bellwether for economic activity. Cargo order volumes for the red metal discharging in China rose in March, both compared to the preceding month and the same period a year earlier. However, the current month has come off to a slow start and, unless ordering picks up sharply, looks set to fall well short of last month’s reading. While the forward-looking nature of the data set suggests that Chinese imports will remain strong in the coming months, the current weakness may indicate that economic growth rates could lose some momentum during the summer.
The cargo order data highlights China’s dominance in the global copper market. However, so far this month, the country has lost a large part of its normal market share, with cargo orders bound for the rest of the world on track for positive month-on-month growth.
Data Source: Shipfix