By Ulf Bergman
The BDI was propelled eight per cent higher by the Panamaxes and Capesizes last week amid a healthy demand situation. For the commodities, the past five trading sessions were mixed, with metals and iron ore gaining ground following a weaker dollar and hopes of more support measures for the Chinese economy, while coal and natural gas faced headwinds.
Macro/Geopolitics
Further evidence that the world’s second-largest economy continues to face challenges emerged today, with the Chinese GDP data for the second quarter failing to meet expectations. The Chinese economy grew by 6.3 per cent during the past three months compared to the same period last year. While the reading was better than the 4.5 per cent year-on-year growth during the first quarter, it fell well short of the 7.3 per cent expected by the markets. The weaker-than-expected growth led to many major banks downgrading their expectations for the year, with some highlighting that the official growth target may be at risk.
The week ahead will be fairly quiet in terms of economic data, with tomorrow’s release of US retail sales data being one of the few significant. The data will provide further insight into the state of the US economy and additional clues for the extent of coming interest rate hikes.
Commodity Markets
Crude oil went against the general flow for energy commodities during the past week as supply concerns supported prices. Despite a 1.8 per cent decline during the week’s final session, the Brent September futures advanced for a third consecutive week and settled at 79.87 dollars per barrel on Friday amid a weekly gain of 1.8 per cent. The contracts have begun the week in the red, with the weak Chinese growth data contributing to losses of around 1.5 per cent.
The resumption of deliveries from a major Norwegian field, following planned maintenance work, contributed to European natural gas prices falling sharply last week. The front-month TTF futures recorded a weekly loss of 22.5 per cent, ending Friday’s session at 25.96 euros per MWh. The contracts have remained under pressure in today’s session, with losses exceeding two per cent.
Coal experienced a second week of headwinds as lower natural gas prices put pressure on demand. The Newcastle August futures dropped by 6.4 per cent and ended Friday’s session at 132.75 dollars per tonne. The contracts for delivery in Rotterdam next month faced even more pressure and settled at 94.50 dollars per tonne on Friday, following a weekly decline of 16.6 per cent.
Mounting optimism that Chinese authorities will provide more support for the economy supported iron ore prices last week. The August futures listed on the Singapore Exchange advanced by 6.0 per cent during the week and ended Friday’s trading at 114.22 dollars per tonne. However, today’s release of weaker-than-expected growth data has seen the positive momentum lost, with the contracts trading more than one per cent below Friday’s close.
A weaker dollar and hopes of more Chinese support for flagging growth rates contributed to base metal prices advancing last week. The aluminium three-month futures listed on the LME were the week’s star performers at 6.1 per cent, while the copper, zinc and nickel contracts saw weekly gains of three to four per cent.
Uncertainty over the future of the Black Sea Grains Initiative contributed to rising grain prices last week. The wheat futures for delivery in September recorded a weekly gain of 1.8 per cent, while the corn contracts increased by 4.0 per cent. Data from the USDA highlighting lower soybean planting contributed to the August contracts gaining 3.7 per cent. Grain prices are likely to continue to gain during the coming days following Russia’s announcement today that it is halting its participation in the BSGI.
Freight and Bunker Markets
Despite weakness on Friday, with the exception of the Handysizes, all of the Baltic Exchange’s dry bulk indices recorded robust weekly performances. The headline Baltic Dry Index advanced by 8.0 per cent over the week, with the Panamaxes and Capesizes providing most of the support. The sub-index for the largest vessels increased by 8.7 per cent amid solid order volumes. The Panamaxes benefitted from a recovery in demand, with their freight rate indicator advancing by 11.3 per cent. The Supramaxes also recorded a weekly gain, albeit more modest at 2.6 per cent. On the other hand, the gauge for the Handysizes ended the week in the red with a decline of 3.5 per cent.
In contrast, the Baltic’s wet freight indices were mostly in the red last week. The dirty tanker index was the only one avoiding the negative territory, with a recovery on Friday contributing to a weekly advance of 2.7 per cent. The gauge for the clean tankers declined by 5.8 per cent over the week, while the LPG and LNG freight indices shed more than one per cent.
Advancing crude oil prices contributed to gains for most bunker fuels last week. The trading in VLSFO in Singapore delivered last week’s exception with a loss of nearly one per cent over the past five sessions. In Rotterdam and Houston, the fuel advanced by 2.9 and 5.7 per cent, respectively. The trading in MGO saw gains of more than four per cent across the three maritime hubs last week.
The View from the Shipfix Desk
The past week saw grain prices recovering from recent lows as concerns over the future of the Black Sea Grain Initiative kept rising. The fears proved to be well founded, as Russia announced earlier today that it is terminating its participation in the agreement. The confirmation of the end to the UN-monitored arrangement will likely see grain prices recovering more of recent losses during the coming days as traders reassess the global supply situation.
Among the grievances that Russian leaders have aired over the BSGI in the past months is that its own exports of grains and fertilisers have faced challenges, although they are not part of any sanctions. Still, cargo order volumes for agricultural commodities loading in Russian ports have remained well above the norm following last year’s bumper crop. The current year’s harvest is also widely expected to be sizeable, and demand for seaborne transportation can therefore be expected to remain firm.
The past two weeks have seen a recovery in cargo ordering activities, with weekly volumes just shy of 1.5 million tonnes. A majority of the cargo orders are for loading in Russia’s Black Sea ports, with only a small portion of the demand linked to ports on other coastlines. Average cargo sizes have remained relatively stable, around 30,0000 tonnes, since the beginning of the year. Hence, should volumes stay healthy or recover further, the Handysizes and Supramaxes will likely be the main beneficiaries.
Data Source: Shipfix