By Ulf Bergman
Macro/Geopolitics
After a raft of disappointing economic data and an increasing risk of deflation, reports yesterday suggested that the Chinese government is preparing more measures to support the world’s second-largest economy. This week has already seen limited support for the country’s ailing property sector, with authorities extending a loan relief for developers. However, the measure is unlikely to make any material difference, with other initiatives for supporting the sector and boosting business confidence, in general, likely to follow. The news was greeted with more bullish sentiments for some commodities, notably iron ore, but the extent of any stimulus is likely to be fairly modest compared to recent years.
Commodity Markets
Crude oil bounced back yesterday after beginning the week in the red. Supply concerns as Russian output cuts are starting to have an effect contributed to the Brent September futures gaining 2.2 per cent on Tuesday, settling at 79.40 dollars per barrel. Today’s early trading has seen the contracts remaining close to yesterday’s close.
The European natural gas futures continued to deliver sizeable daily price moves on Tuesday. The front-month TTF contracts declined by 3.9 per cent and ended the day at 29.06 euros per MWh as subdued demand and high inventories weighed on sentiments. The early stages of today’s trading have seen the contracts retreating further amid losses of around three per cent.
Weaker demand also weighed on coal prices on Tuesday. The Newcastle futures for delivery in August settled at 134 dollars per tonne, following a decline of 2.2 per cent for the day. The bearish sentiments in the European natural gas markets contributed to the coal futures for delivery in Rotterdam next month falling by 6,9 per cent yesterday, settling at 99.35 dollars per tonne. Cargo orders for coal discharging in Europe remain on a downward trend, with volumes during the first third of the month depressed.
The prospects of more Chinese support for the economy contributed to the iron ore futures listed on the Singapore Exchange advancing yesterday after two sessions of losses. The August contracts recorded a daily gain of 2.0 per cent and ended the day at 105.76 dollars per tonne. The bullish mood has been maintained in today’s trading amid gains of more than three per cent.
Base metals had a mixed session on Tuesday, following a relatively quiet start to the week. A weaker dollar provided some support for sentiments, while concerns over the global demand outlook provided the headwinds. The three-month copper and nickel futures listed on the LME recorded daily losses of 0.6 and 1.5 per cent, respectively. In contrast, the aluminium futures advanced by 1.0 per cent, while the zinc contracts edged up by 0.1 per cent.
The grain and oil seed futures trading at the Chicago Board of Trade had another volatile session on Tuesday, with supply concerns fuelling the gains. The wheat September futures gained 2.2 per cent, while the corn contracts rose by 0.5 per cent. The August soybean futures reached the highest level since early March following a daily gain of 1.1 per cent.
Freight and Bunker Markets
The Panamaxes and Supramaxes kept the Baltic Dry Index out of the red yesterday. The headline dry bulk freight indicator advanced by 0.8 per cent on Tuesday as the gauge for the Panamaxes gained 3.1 per cent for the day amid a pick up in order volumes during the first two days of the week. The Supramaxes also gained ground, albeit at the more moderate pace of 0.6 per cent. In contrast, the largest and smallest segments had a day in the negative territory, with the sub-index for the Capesizes shedding 0.3 per cent and the Handysizes retreating by 0.9 per cent.
The Baltic Exchange’s indices for the wet freight rates had an uneventful session yesterday. The clean and dirty tanker indicators declined by 0.2 per cent, while the gauge for the LPG carriers shed 0.5 per cent. In contrast, the index for the LNG tankers advanced by 0.2 per cent.
Rising crude oil prices failed to support the trading in bunker fuels yesterday. The session delivered a mix of modest gains and more substantial losses across the world’s leading maritime hubs. In Singapore and Rotterdam, the VLSFO declined by 2.0 and 1.2 per cent, respectively, while advancing by 0.4 per cent in Houston. The trading in MGO saw gains of 0.5 per cent in the US Gulf port, while Singapore recorded a daily loss of 0.5 per cent. The fuel remained broadly unchanged for the day in Rotterdam.
The View from the Shipfix Desk
After trending lower since the second half of January, copper prices have staged a rebound during the past seven weeks. The three-month futures listed on the LME have advanced by more than five per cent during the period and are currently trading near the levels observed at the beginning of the year. The disappointing economic recovery in China contributed to weather-than-expected demand and weighed on prices. However, renewed optimism that Chinese authorities will do more to support the flagging growth rates amid recent depressed economic data and falling inventory levels at the major exchanges have fuelled the recent rebound.
Cargo order volumes for copper discharging globally have recovered strongly in recent weeks. The total weekly volumes nearly doubled between the end of May and the end of last month. However, after peaking at around 600,000 tonnes, the past week saw volumes dropping by nearly thirty per cent. Much of the decline was due to lower demand for seaborne transportation of the red metal to China, while volumes for the rest of the world recovered. Still, the recent upward trend for cargo orders for copper support the higher prices, but should the past week’s drop in volumes prove to be sustained, copper prices could come under renewed pressure.
Apart from a spike at the end of June, amid higher demand for copper to be transported to China, the average cargo sizes have remained relatively stable in the past few months. The typical cargo of seaborne copper has stayed in the range of 15-20,000 tonnes for much of the year, both for shipments to China and the rest of the world.
Data Source: Shipfix