By Ulf Bergman
Macro/Geopolitics
Yesterday, purchasing managers' indices were released in several of the world’s larger economies.
In the US, the services PMI exceeded expectations by quite a margin with a reading of 55.1. In contrast, the manufacturing sector in the world’s largest economy failed to live up to consensus projections. A reading of 48.5 suggested that US Industrial production has come under pressure amid rising interest rates and concerns over the outlook for the economy. Across the Atlantic, French and German PMI data painted a similar picture. Manufacturing in the two countries languished in contraction territory while the services sectors remained expansionary.
The weak readings across the manufacturing sectors are pointing towards lower demand for commodities in the near term, which could put additional pressure on prices and demand for seaborne transportation.
Commodity Markets
Despite continued concerns over a US default as a deal to raise the debt ceiling remained elusive, crude oil prices advanced yesterday. The mood turned bullish as Saudi Arabia’s top energy official warned that short positions in the crude oil market could become costly for traders, suggesting that OPEC+ may reduce output when they meet at the beginning of June. The Brent July futures recorded a daily gain of 1.1 per cent and settled at 76.84 dollars per barrel. The contracts have also continued higher during today’s early trading with gains of nearly two per cent.
European natural gas prices extended on Monday’s losses yesterday as demand remained weak in a well-supplied market. The front-month futures declined by 2.0 per cent and ended Tuesday’s session at 29.13 euros per Megawatt-hour. It was the lowest closing price since the middle of June 2021 and more than 90 per cent below the peak recorded at the end of August last year. While the contracts recovered some of yesterday’s losses in today’s early trading, they have since reversed course and are trading around one per cent below yesterday’s close.
After a few days of gains, the coal markets came under renewed pressure yesterday amid softening demand and falling natural gas prices. The Newcastle futures for delivery next month shed 1.3 per cent and ended Tuesday’s session at 161.25 dollars per tonne. The contracts for delivery in Rotterdam in June declined by 2.4 per cent and settled just above 105 dollars per tonne.
The front-month iron ore futures listed on the Singapore Exchange extended losses into a fourth consecutive day on Tuesday as concerns over the demand outlook amid soft economic data weighed on prices. The contracts ended the session marginally below 100 dollars per tonne after a daily loss of 2.1 per cent. The bearish sentiments have also carried into today’s trading, with the contracts retreating by more than four per cent.
The soft economic data and a stronger dollar weighed on the base metals yesterday. The copper three-month futures listed on the LME declined by 0.3 per cent yesterday, while the aluminium and nickel contracts recorded daily losses in excess of 1.5 per cent. Zinc delivered the session’s weakest performance, with a 2.4 per cent drop.
Grains and oilseed remained volatile yesterday as contradicting signals fuelled continued price swings. While the Black Sea Grain Initiative has been extended, concerns are building over how much seaborne exports will transit the safe corridor amid rising geopolitical frictions. In addition, the USDA downgraded its projections for the coming harvest in Ukraine and Russia as the conflict takes its toll on output. The wheat July futures trading in Chicago advanced by 2.6 per cent yesterday after shedding nearly five per cent last week. The corn contracts gained a modest 0.6 per cent following a solid performance on Monday. In contrast, the soybean July futures declined by 1.4 per cent.
Freight and Bunker Markets
The narrative of the recent days remained intact for the Baltic Exchange’s dry bulk freight indices, with all of the indicators in the red for a ninth consecutive session. The headline Baltic Dry Index declined by 1.2 per cent. However, in contrast to recent sessions, the Supramaxes delivered the weakest performance, with their sub-index shedding 1.9 per cent amid high tonnage supply and weak demand. The indicator for the Capesizes declined in line with the headline index as rising tonnage supply offset an increase in ordering volumes. Tuesday's losses for the Panamaxes and Handysizes were more modest, with the freight indices for the two segments shedding around three-quarters of a per cent.
For the Baltic’s wet freight indices, performances remained mixed on Tuesday. The dirty tanker index shed 0.6 per cent, while the gauge for their clean relatives advanced by 8.3 per cent. For the liquified gas carriers, the LPG index remained the strong performer with a daily gain of 1.7 per cent, while the LNG freight rate indicator continued to trend lower with a loss of 2.3 per cent.
While MGO prices in the world’s leading ports remain broadly unchanged for the month to date, VLSFO has recorded significant losses since the end of April. Falling crude oil prices have contributed to VLSFO declining by 5.9 per cent in Houston and 2.9 per cent in Rotterdam. However, in Singapore, the losses have been more modest, and the fuel has shed 0.8 per cent since the beginning of the month. Yesterday’s trading recorded mostly minor price moves for the two fuels in Singapore and Rotterdam. However, in Houston, losses were more significant, with VLSFO retreating by 1.5 per cent and MGO declining by 0.8 per cent.
The View from the Shipfix Desk
While European front-month coal futures have recovered somewhat after briefly dropping below 100 dollars per tonne last week, they still remain close to the lowest levels recorded in nearly two years. Ample supplies of natural gas amid robust inflows of seaborne LNG and falling demand have contributed to the pressure on prices. However, prices may recover later in the year, as the December futures for European natural gas point towards higher energy prices later in the year.
Cargo order volumes for coal destined for European ports have been trending lower since September last year as inventories in the continent have built up amid high import volumes and declining fears of an imminent shortage of natural gas. However, the data for the current month suggest that cargo order volumes are on course to stabilise, with the aggregate for May likely in line with the levels recorded in April. The current month has also seen US coal increasing its share of the European market. In recent months, the trans-Atlantic shipments have accounted for approximately a third of the total volumes, but in May, the share has risen to just above half. At the same time, shipments from South Africa have continued to decline.
Average cargo sizes for coal shipped from the US to Europe increased slightly in May to around 60,000 tonnes. In contrast, the typical cargo size for coal exported from the distant terminals in Australia has decreased sharply month-to-date.
Data Source: Shipfix