By Ulf Bergman
Macro/Geopolitics
Following Wednesday’s disappointing official Chinese PMI data, which raised concern over the strength of the Chinese economy and the demand outlook for commodities, today’s release of the Caixin PMI for the manufacturing sector painted a somewhat different picture. The gauge, which S&P Global compiles, surprised on the upside and indicated that Chinese factory activity expanded slightly in May. While the Caixin gauge has a greater focus on smaller and more export-oriented businesses than the official PMI, the contradictory signals highlight the growing uncertainty over the direction of the world’s second-largest economy.
Commodity Markets
The weaker-than-expected PMI data in China and a surprise build-up of US inventories weighed on crude oil prices yesterday. The Brent August futures declined by 1.5 per cent and ended the day at 72.60 dollars per barrel. The contracts recovered some lost ground in today’s early trading, helped by the better-than-expected reading for the Caixin manufacturing PMI, but has since returned to vicinity of yesterday's close.
European natural gas prices began yesterday’s trading in the red. Still, reports of an unplanned outage in the Norwegian Visund gas field saw the futures reversing course after a few hours. The July contracts recorded a daily gain of 6.4 per cent and settled at 26.85 euros per Mwh. Today’s early trading has seen a reversal of yesterday’s bullish sentiment amid losses of around ten per cent.
A rebound for European natural gas prices and a recovery in Asian demand contributed to higher coal prices during Wednesday’s session. The Newcastle July futures advanced by 2.0 per cent and ended the day at 135.25 dollars per tonne, while the contracts for delivery in Rotterdam next month settled at 90.15 dollars per tonne after a 1.9 per cent gain for the day.
Iron ore prices weathered yesterday’s disappointing reading of the Chinese manufacturing PMI, with the July futures listed on the Singapore Exchange ending the session broadly unchanged at 98.40 dollars per tonne. In contrast, the stronger-than-expected Caixin PMI has contributed to the contracts gaining nearly four per cent in today’s trading.
The prospects of weaker Chinese demand and a stronger US dollar weighed on many base metals yesterday. The three-month copper futures listed on the LME shed 0.4 per cent yesterday, while the zinc and nickel contracts recorded daily losses in excess of two per cent. On the other hand, the aluminium futures advanced by 1.0 per cent.
Following extensive losses on Tuesday, the grain and oilseed futures had a less eventful day yesterday. The soybean contracts for delivery next month advanced by 1.3 per cent on Wednesday. The wheat July futures gained 0.5 per cent, while corn ended the day unchanged.
Freight and Bunker Markets
For dry bulk freight rates, red remains the colour of the season, and all of the Baltic Exchange’s indicators declined yesterday. Rising headwinds for the global economy and the Chinese economy, in particular, contributed to the Baltic Dry Index declining by 13.0 per cent on Wednesday. While all segments remained under pressure, the Capesizes contributed to much of yesterday’s weak showing for the headline index. The sub-index for the largest vessels slumped by 23.6 per cent amid continued weak ordering activities. The freight indicators for the Panamaxes and the Supramaxes dropped by 4.1 and 3.2 per cent, respectively. The gauge for the Handysizes remained the least affected, with a decline of 1.7 per cent.
The last session was far less dramatic for the Baltic’s wet freight indices. The dirty tanker index remained on its recent downward trajectory with a daily loss of 1.7 per cent, while the spot freight rates for the clean tankers recorded a second consecutive daily gain of 0.3 per cent. The indicator for the LPG carriers remained the strongest performer amid an advance of 1.6 per cent, while the index for the LNG freight rates stayed stationary.
Bunker fuel prices came under pressure yesterday amid falling crude oil prices and concerns over the demand outlook. The VLSFO dropped by around three per cent in Houston and Singapore, while losses were more moderate in Rotterdam at 2.2 per cent. The trading for MGO saw losses of around two per cent across the leading maritime hubs. Yesterday’s losses contributed to the fuels declining over the course of the past month. For VLSFO, Houston led the way lower amid a monthly loss of 7.2 per cent, while May saw declines of 3.7 per cent in Singapore and 4.5 per cent in Rotterdam. The monthly losses were more limited for MGO, which declined by around three per cent in Rotterdam and Houston while shedding 2.1 per cent in Singapore.
The View from the Shipfix Desk
Copper prices fell nearly six per cent during the past month. While the prices are expected to rise in the future as the worldwide supply situation will become increasingly tight as the energy transition will see rising demand, the recent decline suggests that the global economy faces increasing headwinds in the short term.
The forward-looking cargo order data indicate that global demand for the red metal has hit a soft patch, with aggregate demand for seaborne transportation below the levels observed earlier in the year. Order volumes remained broadly unchanged month-on-month in May, with a minor increase in cargoes destined for China and a fall in demand from the rest of the world. Still, compared to the same month last year, aggregate order volumes have fallen considerably, with non-Chinese demand slumping. However, with the demand for seaborne transportation of copper to Chinese ports remaining stable, there may be some hope for the country’s manufacturing sector.
Data Source: Shipfix