By Ulf Bergman
Macro/Geopolitics
Interest rates dominated the past week’s news flow. After bringing the interest rate to the highest level since 2007, the Federal Reserve paused its current hiking cycle as US inflation showed signs of slowing. However, officials from the US central bank stressed after the announcement that there is more to be done in the fight against inflation, and that more hikes are on the cards. Still, investors are expecting that the upside is limited, and, as a result, the US dollar came under pressure during the week and declined by nearly 1.5 per cent.
Across the Pacific, very low inflation and weak economic data saw the Chinese central bank reducing its short-term interest rate for the first time in ten months to boost confidence and economic activities. The move suggests that the Chinese government is increasingly concerned over the sluggish recovery, and the likelihood that long-term rates will be cut this week has increased.
Commodity Markets
Crude oil swung between daily gains and losses last week as traders dealt with opposing economic signals. Continued uncertainty over the global economy competed with expectations of more Chinese stimulus, contributing to the week’s volatile conditions. The Brent August futures gained 1.2 per cent on Friday and settled at 76.61 dollars per barrel, 2.4 per cent above the previous week’s close. The start to the new week has been uneventful, with the contracts recording marginal losses during Monady’s early trading.
European natural gas prices remained volatile last week, as reports that the Dutch government will authorise a closure of the Groningen field later in the year contributed to a renewed focus on the supply situation. In addition, higher Asian prices led to more competition for LNG cargoes. The front-month futures declined by 14.9 per cent on Friday and ended the week at 35.01 euros per MWh. Still, despite the significant decline during the final trading session, the contracts recorded a gain of 9.2 per cent last week. Friday’s negative momentum has carried into the new week, with the contracts trading around ten per cent below last week’s close.
The past week saw diverging fortunes for the different coal futures. The Newcastle front-month contracts ended the week at 133.05 dollars per tonne, 7.4 per cent below the previous Friday’s close. Easing demand contributed to the weekly loss. In contrast, the contracts for delivery in Rotterdam next month recorded a weekly gain of 2.0 per cent as higher natural gas prices spurred demand. The futures ended Friday’s trading at 115 dollars per tonne after gaining 1.5 per cent during the week’s final session.
After beginning the week in the red, the iron ore futures listed on the Singapore Exchange recovered as the week progressed. Rising expectations that the Chinese government will introduce additional stimulus measures to support the country’s economic recovery contributed to the improving sentiments. After shedding 3.3 per cent on Monday, the front-month contracts delivered a weekly gain of 0.8 per cent and ended Friday’s session at 113.51 dollars per tonne. The new week began in the red with modest losses, but the contracts have since recovered and are trading marginally higher than on Friday.
A cent drop for the US dollar index and hopes of a recovery in Chinese demand contributed to gains for most base metals last week. The three-month copper futures listed on the LME recorded a 2.3 per cent gain for the week, while the zinc and nickel contracts advanced by 3.1 and 8.8 per cent, respectively. However, the aluminium futures ended the week broadly unchanged.
Suggestions by the Russian leadership that it will not approve an extension of the Black Sea Grain Initiative when it is due for renewal in four weeks, and dry weather conditions across the US Midwest contributed to robust gains for the grain and oilseed futures last week. The July wheat futures recorded a weekly increase of 9.2 per cent, while the corn and soybean contracts advanced by nearly six per cent.
Freight and Bunker Markets
Despite a 1.6 per cent decline on Friday, the Baltic Dry Index recorded a gain of 2.0 per cent during the past week. Friday’s negative performance for the headline index was mostly due to a 4.4 per cent drop for the Capesizes. The weak performance for the largest vessels on Friday offset most of the week’s early gains for the segment, and the sub-index for the Capesizes recorded a 0.9 per cent advance over the past five sessions. The freight rate indicator for the Panamaxes recorded a weekly gain of 4.1 per cent amid gains during the second half of the week. The Supramaxes ended a run of four weeks of losses with a weekly gain of 1.6 per cent. On the other hand, the Handysizes went against the flow and recorded a weekly decline of 7.4 per cent, extending losses into a seventh consecutive week amid continued weak demand.
The Baltic’s wet freight indices were also mostly in the black during the past week. After three weeks in the red, the gauge for the dirty tankers advanced by 12.0 per cent amid hopes of improving Chinese demand. The spot freight indices for the gas carriers also recorded weekly gains, with the LNG segment leading the way higher with an advance of 15.4 per cent. The LPG freight index rose by 7.0 per cent. The clean tankers were the past week’s laggards, with their index declining by 3.0 per cent.
Rising crude oil prices contributed to gains for most bunker fuels last week. The trading in VLSFO and MGO in Singapore saw increases of 2.8 and 1.5 per cent, respectively. In Rotterdam, the former fuel advanced by 1.9 per cent, while the latter soared by 4.9 per cent during the past five sessions. In contrast, the trading in Houston delivered diverging fortunes over the past week, with VLSFO shedding 1.1 per cent and MGO gaining 1.7 per cent.
The View from the Shipfix Desk
Despite gaining around 25 per cent month-to-date, European coal prices remain nearly 70 per cent below the levels recorded in September last year. A substantial drop in natural gas prices has tempered the continent’s newfound appetite for the dirtiest of fossil fuels and seen cargo order volumes for coal discharging in Europe trending lower since the third quarter of last year.
Last year’s introduction of European sanctions on Russian coal exports forced the continent’s buyers to find alternative sources of the commodity. The development saw cargo order volumes for Colombian coal bound for Europe increasing during the second half of last year. However, recent months have seen the volumes returning to more normal levels. As a result of the lower demand from European buyers, more of the Colombian coal has found its way to the distant shores in the Far East. Cargo order volumes for the Far East and China have offset some of the decline in European demand. The increase in demand for shipments of Colombian coal to the Far East has primarily benefited the Panamaxes and the Capesizes.
Data Source: Shipfix