By Ulf Bergman
Macro/Geopolitics
Yesterday was a day when key economic data in the world’s largest economies failed to match expectations.
First out was Chinese data for industrial production and retail sales during April. While the former delivered an annual increase well above what was observed in March, the reading of 5.6 per cent fell well short of the 10.9 per cent consensus projection. Retail sales in the world’s second-largest economy during the past month also failed to live up to expectations, with the year-on-year growth rate of 18.4 per cent missing the estimate of 21 per cent. The disappointing readings contributed to mounting concerns that the Chinese economy is facing a more challenging future than what was envisaged earlier in the year.
Across the Pacific, US retail sales for the month of April also failed to impress. While the 0.4 per cent month-on-month increase ended a run of two months of declines, the reading missed the consensus forecast of 0.8 per cent. The weaker-than-expected growth in retail sales will provide the Federal Reserve with more room for manoeuvre. A pause in its current cycle of interest rate hikes is becoming increasingly likely, as the US central bank has to deal with mounting concerns over the debt ceiling and the banking sector's health.
Commodity Markets
Crude oil endured a volatile session yesterday as traders digested the contradictory signals of weaker-than-expected Chinese industrial production and a bullish demand outlook from the International Energy Agency. The Brent futures for delivery in July eventually settled at 74.91 dollars per barrel, following a 0.4 per cent drop for the day. Today’s early trading has seen the contracts remaining near yesterday’s close.
During yesterday's session, European natural gas futures also swung between gains and losses. The front-month contracts ended the day 1.5 per cent lower at 31.82 euros per Megawatt-hour, the lowest closing price since June 2021, amid increasingly weak demand. However, the contracts have staged a recovery in today’s trading, with gains of around two per cent.
Thermal coal also faced headwinds yesterday as the demand outlook remained subdued. The futures for delivery in Rotterdam next month briefly traded as low as 98 dollars per tonne before recovering some losses and settling at 101.25 dollars per tonne, 3.7 per cent below Monday’s close. The Newcastle contracts for delivery next month faced less harsh headwinds and ended the session at 161.45 dollars per tonne after a daily decline of 0.6 per cent.
Iron ore survived the lower-than-expected Chinese industrial production data as hopes of robust future construction demand offset the underwhelming reading. The June futures listed on the Singapore Exchange ended Tuesday’s trading session at 105.05 dollars per tonne, marginally above Monday’s close. Today’s trading has seen the contracts moving higher, with gains exceeding three per cent.
The weak economic data and a stronger dollar put pressure on most base metals yesterday. The three-month copper futures listed on the LME declined by 1.8 per cent on Tuesday, while the zinc and nickel contracts shed 1.6 and 2.3 per cent, respectively. In contrast, the aluminium futures ended yesterday’s trading session unchanged.
After beginning the week with gains, the grain and oilseed futures listed on the Chicago Board of Trade had a day in the red on Tuesday. While the future of the Black Sea Grain Initiative remains uncertain, a continued favourable global supply situation contributed to the reversal of fortunes yesterday. The wheat and corn futures for delivery in July declined by 2.9 and 1.9 per cent, respectively, while the soybean contracts shed 2.6 per cent.
Freight and Bunker Markets
For a fourth consecutive session, all of the Baltic Exchange’s dry bulk freight indices were in the red yesterday. The headline Baltic Dry Index retreated by 3.0 per cent, with the largest two segments the main contributors to the weak performance. The sub-indices for the Capesizes and Panamaxes dropped by 3.8 per cent as demand remained subdued in the segments. The smaller vessels faced less pressure, with the gauges for the Supramaxes and Handysizes declining by 0.6 and 0.8 per cent, respectively.
In contrast to the dry bulk indices, the Baltic’s wet freight indices recorded both gains and losses yesterday. The indicator for the dirty tankers extended its run of positive days into a sixth session with an increase of 1.5 per cent. On the other hand, the clean tanker index continued the slide that started at the beginning of the month. After shedding 5.3 per cent on Tuesday, the gauge has dropped by more than 22 since the beginning of the month. For the gas carriers, the past session was equally mixed, with the indicator for the LPG tankers advancing by 1.8 per cent and the LNG index dropping by 3.3 per cent.
Despite minor losses in the crude oil markets, bunker fuels advanced yesterday across the world’s major ports. In Singapore, the MGO and VLSFO prices increased by nearly two per cent on Tuesday. Still, despite the gains, the fuels were trading 1.2 and 3.1 per cent below the levels recorded at the end of April. In Rotterdam, the past session also ended with robust gains, with the VLSFO advancing by 1.2 per cent and the MGO gaining 2.5 per cent. Like in Singapore, the gains only partially offset the losses sustained month-to-date. While the marine fuels also gained ground in Houston, the price increases were more modest than in the other two ports. The VLSFO edged up by 0.1 per cent, while the MGO gained 0.8 per cent. The minor gains reduced the month's aggregate losses marginally, with the VLSFO now trading 5.4 per cent below the most recent month-end and the MGO seeing a 0.8 per cent decline for the month.
The View from the Shipfix Desk
As the last vessel loaded with corn left Ukraine before tomorrow’s expiry of the Black Sea Grain Initiative, the future of Ukrainian seaborne exports of agricultural commodities from the country’s ports is becoming increasingly uncertain. While talks aiming at rescuing the deal are supposedly ongoing at various levels, there has so far been no sign of an immediate breakthrough. Despite the negative development for seaborne exports of grains from Ukraine, wheat and corn prices have been under pressure recently, as the supply outlook from other growing regions looks favourable.
In addition to the expectations of sizeable harvests in the coming months, there have been developments towards Ukrainian grain exports finding alternative routes to bypass the absence of a deal for direct shipments. Cargo order volumes for agricultural commodities loading in ports reachable by rail from Ukraine have seen a rebound during the current month. After a brief dip in April, they could be on track to top 20 million tonnes. The ports in Romania have been the primary beneficiaries, but cargo order volumes for grains loading in Poland are also on course for a strong month. However, the average cargo sizes highlight that the trade from alternative ports is dominated by smaller vessels.
Data Source: Shipfix