By Ulf Bergman
Macro/Geopolitics
The past 24 hours have seen the releases of PMI data for the services sectors in the world’s two largest economies. The gauges painted very different pictures of the state of affairs on the different sides of the Pacific. In the US, the purchasing managers' index remained in expansionary territory, but with a reading of 51.2, it fell well short of the market expectation of 54.5. Hence, the gauge suggested that the US services sector is growing at its slowest pace since December last year. The weaker-than-expected expansion will give the Federal Reserve more room for manoeuvre as it tries to shore up confidence in the banking sector following recent turmoil.
In contrast, today’s publication of the Caixin services PMI indicates that the Chinese economy is continuing to recover following years of disruptions under strict anti-Covid measures. The gauge surged to its strongest level since November 2020 amid an improvement in consumer demand. The increasing activities in the services sector contributed to higher employment as firms took on more workers to meet rising demand. However, the economic recovery may struggle to maintain its strong momentum in the near term, as the domestic demand recovery remains uneven. In addition, the headwinds that the global economy is facing could weigh on overseas demand for Chinese goods and services.
Commodity Markets
After Monday’s solid gains in the wake of OPEC+’s surprise production cut, crude oil prices have remained stable. The Brent May futures ended Wednesday’s session just shy of 85 dollars per barrel amid a 0.2 per cent gain for the day. The contracts have also only recorded marginal losses in today’s early trading.
European natural gas futures declined yesterday as the spell of colder weather across parts of the continent is coming to an end. Lower demand contributed to the front-month contracts shedding 4.3 per cent and settling at 44.58 euros per megawatt-hour. The contracts have also continued to retreat in today’s session amid losses of around one per cent.
The thermal coal futures had a session of mixed fortunes on Wednesday. The contracts for delivery in Rotterdam next month mirrored the continent’s natural gas prices and fell by 3.7 per cent to settle at 137 dollars per tonne. In contrast, the Newcastle May futures advanced by 2.4 per cent amid renewed expectations of lower supply and ended the session at 209.50 dollars per tonne.
Iron ore remained under pressure on Wednesday amid concerns over a reduction in Chinese steel production and pressure from China’s regulators over what they see as excessive speculation. The May futures listed on the Singapore Exchange declined by 0.7 per cent, ending Wednesday’s trading at 117.85 dollars per tonne. The contracts have continued to retreat in today's trading with losses of around a quarter of a per cent.
A rebound for the US dollar weighed on most base metals during yesterday’s trading. The aluminium, zinc and nickel three-month futures declined by more than 1.5 per cent yesterday. However, the copper contracts went against the flow and gained 0.4 per cent amid continued tight supplies.
The grain and oilseed futures trading in Chicago ended yesterday’s session in the red. While the losses were limited for corn and soybeans, the wheat May futures declined by 1.4 per cent as the supply outlook improved amid more favourable weather conditions in the US growing areas.
Freight and Bunker Markets
The Baltic Dry Index advanced by 3.5 per cent on Wednesday amid continued strength for the two largest vessel segments. The sub-index for the Capesizes gained 4.8 per cent as cargo order volumes improved on last week’s subdued activities. The spot freight rates for the Panamaxes also showed considerable strength, with the segment’s indicator advancing by 5.2 per cent as order activities remained firm. On the other hand, the smaller vessel segments endured a tenth consecutive session in the red. The gauge for the Supramaxes shed 0.5 per cent, while the one for the Handysizes declined by 1.7 per cent.
Among the Baltic’s wet freight indices, the gauges for the clean tankers and the LPG carriers delivered yesterday’s drama. The former declined by ten per cent, while the latter continued to recover from recent losses with a 7.7 per cent gain for the day. In contrast, the dirty tanker index and the LNG freight rate gauge remained broadly unchanged for the day.
The limited price moves in the crude oil markets contributed to a relatively quiet day for the trade in marine fuels. VLSFO remained broadly unchanged in Singapore and Rotterdam while declining by 0.7 per cent in Houston. The MGO prices came under pressure in Houston and Singapore, with losses of 1.6 per cent in the former and 0.6 per cent in the latter. However, in Rotterdam, the losses were marginal.
The View from the Shipfix Desk
Iron ore prices have come under pressure in the past three weeks. Since reaching 131 dollars per tonne in the middle of March, the steelmaking ingredient has been trending lower and is currently trading more than ten per cent below the recent high. Demand and prices have suffered from production cuts to ease high pollution levels and a threat of a clampdown on what Chinese authorities perceive as price speculation.
While Chinese steel exports only account for a small portion of the country’s annual production, as most of the output is used domestically, exports have been trending higher in recent months. Cargo order volumes for steel shipped as dry bulk have steadily increased since October last year after trending lower in the preceding six months. The month-on-month increase in March was largely driven by an increase in demand for seaborne transportation to Europe and the Middle East.
The trade has also seen a development towards larger cargo sizes across all destinations in recent months. The average for shipments to Europe and the Middle East have more or less doubled in the past year to around 40,000 tonnes.
Data Source: Shipfix