By Ulf Bergman
Macro/Geopolitics
In a further sign that the past year’s interest rate hikes by the Federal Reserve are starting to have an effect, the annual US inflation rate fell below five per cent for the first time in two years. Consumer prices rose by 4.9 per cent in April compared to the same month last year, marginally less than the 5.0 per cent expected by the market. The lower-than-expected reading will provide the US central bank with more room for manoeuvre as it has to manage concerns over the stability of the banking sector and a potential US default should an agreement over the debt ceiling not be reached. Still, the inflation remains well above the Fed’s target level, and given the slow pace of decline, the prospects for interest rate cuts later in the year are looking increasingly slim.
Commodity Markets
After a few sessions in recovery mode, crude oil prices reversed course on Wednesday as an unexpected increase in US inventories pointed towards weakening demand in the world’s largest economy. The Brent July futures declined by 1.3 per cent and ended the session at 76.41 dollars per barrel. However, the contracts have recovered some of yesterday’s losses during today’s early trading amid gains of nearly one per cent.
Yesterday, the European natural gas front-month futures closed below 35 euros for the first time since July 2021, when Russia first started to restrict its exports to Europe. The June contracts shed 2.7 per cent and settled at 34.99 euros per megawatt-hour. Today’s early trading has seen further losses, with the contracts trading around half a per cent below yesterday’s close.
Coal prices remained under pressure during Tuesday’s session amid weakening demand and lower natural gas prices. The Newcastle futures for delivery in June declined by 1.6 per cent and ended yesterday’s session just shy of 165 dollars per tonne. The front-month contracts for delivery in Rotterdam faced even harsher headwinds and dropped by 4.5 per cent to 113.45 dollars per tonne.
After extensive losses during Monday’s trading session, iron ore staged a partial recovery yesterday. Hopes of a rebound in Chinese demand as data showed a five per cent year-on-year increase in foreign purchases of the steel-making ingredient contributed to the gains. The June contracts listed on the Singapore Exchange advanced by 1.3 per cent and settled at 103.30 dollars per tonne. However, yesterday’s positive sentiments have not been maintained in today’s session, with the contracts again trading below 100 dollars per tonne amid losses of around four per cent.
The mounting concerns over the state of the global economy weighed on the demand outlook for base metals yesterday. Despite a weaker dollar, the three-month base metal futures trading on the LME ended Tuesday’s trading well into negative territory. The copper futures retreated by 1.4 per cent, while the aluminium and zinc contracts shed around two per cent. Nickel proved to be the day’s worst performer, with the contracts recording a second consecutive 4.2 per cent daily loss.
Despite ongoing concerns over the future of the Black Sea Grain Initiative, the July wheat futures declined by 0.3 per cent yesterday on an improving supply outlook for the coming harvest. The soybean contracts also ended the day in the red after retreating by 0.7 per cent. In contrast, the corn July futures reversed some of the recent losses amid a daily gain of 1.6 per cent.
Freight and Bunker Markets
Continued bullish sentiment in the Capesize segment contributed to the Baltic Dry Index advancing by 2.6 per cent on Wednesday. The freight rate gauge for the largest segment rose by 4.8 per cent amid reasonably robust ordering activities. The Supramaxes also remained in the black, albeit with somewhat less spectacular gains for their freight rates at 1.5 per cent. In contrast, the gauges for the Panamaxes and Handysizes recorded limited daily losses yesterday as demand remained weak. The former declined by 0.9 per cent, and the latter shed 0.3 per cent.
The Baltic’s wet freight indices also recorded a day of mixed fortunes. The dirty tanker index advanced by 7.3 per cent, while their clean siblings ended the day in the red amid a 1.5 per cent decline. The gas carriers were also on diverging paths, with the LPG index gaining 2.9 per cent while the indicator for the LNG freight rates remained unchanged.
The trading in VLSFO only recorded minor moves yesterday across the world’s leading maritime hubs. Still, the fuel has declined since the beginning of the month amid falling crude oil prices. In Singapore, prices have retread by 2.1 per cent since the end of April, while losses in Houston and Rotterdam reached 2.7 and 1.2 per cent, respectively.
For MGO, the month has evolved somewhat differently, with the fuel declining by 1.9 per cent in Singapore and 0.5 per cent in Houston month-to-date while gaining 1.1 per cent in Rotterdam.
The View from the Shipfix Desk
Steel and iron ore prices have been trending lower sharply since the middle of March amid mounting concerns over the patchy nature of the Chinese economic recovery and the demand outlook for the two commodities. The iron ore futures for delivery in June listed on SGX have shed more than 20 per cent during the period, while Chinese steel rebar prices have retreated by around eighteen per cent.
As Chinese domestic demand for steel has remained subdued amid weakness in the manufacturing sector, the country’s steel exports have surged. Cargo order volumes for steel loading as dry bulk in Chinese ports trended higher throughout the last quarter of last year and the first three months of this year. Given the forward-looking nature of the data set, the peak in March translated into high seaborne Chinese steel exports in April. However, order volumes in April failed to match the levels recorded in the preceding month, and the current month has seen a slow start to activities. As a result, Chinese steel exports can be expected to decline in the coming months and, unless a pick-up in domestic demand matches it, could put further pressure on iron ore prices.
The recent weakness in cargo ordering activities has also brought an end, at least temporarily, to a long-term trend towards larger cargo sizes, with the average cargo size declining by approximately ten per cent since March.
