“In a week overwhelmed by macro dynamics and lack of vividness down to the spot arena, the leading Baltic Dry Index trended sideways, in anticipation of what lies ahead.”
After hiding behind various public holidays during last week, Baltic indices started the current one in search for direction. There was a widespread sense in the spot market that previous week's softer tone was just an outlier and sooner rather than later activity would see sunny days. This feeling was further supported from a definitely positive opening for the Capesizes, with Baltic exchange's first published index for the week being in the green at noontime on Tuesday. However, this euphoria was about to be seriously tested as the week progressed.
Whilst Capesizes kept steaming north, China's trade data chopped down some of the initial enthusiasm. In particular, China's imports contracted sharply in April, while exports rose at a slower pace. Following the lifting of Covid-19 curbs, the locomotive of global growth expanded faster than expected in the first quarter. However, much of this growth stemmed from robust services consumption rather than the good old manufacturing sector. In fact, factory output lagged behind, with the latest trade figures pointing to a long road towards rebuilding the pre-pandemic momentum.
With Chinese international trade data being the focal point of the shipping community this week, exports beat expectations and rose by 8.5 percent last month from a year earlier to US$295.42 billion, down from an astounding 14.8 percent increase in March, according to data released by China Customs on Tuesday. Imports, on the other hand, fell short of expectations and shrank by 7.9 percent from a year earlier to US$205.21 billion, amidst weak demand and lower commodity prices. The sluggish tone of imports may be partly driven by a noticeable slowdown in global demand, after months of monetary tightening. Overall, the weak trade data is in line with April’s official manufacturing Purchasing Managers’ Index, balancing below the 50-point mark for the first time this trading year.
In reference to the dry bulk commodities, in specific, Chinese customs cleared 90.44 million tonnes of iron ore in April, 5.1 percent more than a year earlier. Iron ore demand picked up as China's average daily hot metal output among the surveyed 247 steel mills reached 2.45 million tonnes in April, up 5.6 percent from the same period the previous year, according to a Reuters calculation based on data from consultancy Mysteel. April volumes, however, were below 100.23 million tonnes imported in March as shrinking steel margins undermined buying interest. Furthermore, data on Thursday showed new Chinese bank loans plunged more sharply than expected during the previous month, among a slew of downbeat indicators spurring
concerns that the economy’s recovery is losing steam. Many Chinese steel mills have reportedly lowered their prices amidst growing apprehension over steel demand during peak spring construction season. Against this backdrop, the most-traded September iron ore on China's Dalian Commodity Exchange reported losses today, marking a sixth consecutive weekly decline. Iron ore has slumped more than 20 percent since touching this year's maxima of $131 a tonne in mid-March, as the initial joyous feeling over China's lifting of Covid-19 restrictions subsided.
As far as the other two major commodities of the dry bulk spectrum go, China's soybean imports fell in April to 7.26 million tonnes, significantly below market’s expectations. Chinese customs in April began a requirement for traders to wait for results of quarantine checks before taking delivery of their soybeans up to two weeks later, said Dayue Futures analyst Wang Mingwei. Traders or crushers were able previously to take delivery into their own warehouses while awaiting the inspection permit before starting processing. Cargoes are now held at customs warehouses until the permit is granted, increasing importers’ costs and having a negative bearing on the quantity demanded. Another commodity that softened in April was coal, with customs data showing imports easing to 40.68 million tonnes, down from a 15-month high of 41.17 million in March. In spite of an impressive first quarter when coal imports were standing materially above those of last year, the question for the seaborne coal market is whether April's decline marks the start of a weaker import trend. The price differential between domestic and imported thermal coal prices will be a key factor determining seaborne activity going forward. Up to now, Australian coal was cheaper than equivalent local supplies, a balance that has shifted in recent weeks.
In a week overwhelmed by macro dynamics and lack of vividness down to the spot arena, the leading Baltic Dry Index trended sideways, in anticipation of what lies ahead.
Data source: Doric