By Ulf Bergman
Macro/Geopolitics
Yesterday, the International Monetary Fund upgraded its projections for global growth this year. An improving outlook and a shrinking risk of the global economy performing a hard landing led the IMF to adjust its expected growth to 3.0 per cent, up from a projection of 2.8 per cent in April. Still, the global economy is expected to expand by less than last year’s 3.5 per cent, and the IMF also warned that significant downside risks remain in place. While the prospects of a soft landing for the US economy are increasing, should the world’s largest economy face stronger-than-expected headwinds during the second half of the year, the IMF may be forced to reassess its projections yet again.
Commodity Markets
An improving demand outlook for China amid expectations of more economic stimulus contributed to crude oil prices rising yesterday. The September Brent futures recorded a daily gain of 1.1 per cent and settled at 83.64 dollars per barrel on Tuesday. The contracts have seen losses of around one per cent in today’s early trading amid suggestions of rising US inventories.
The heat in the southern parts of the continent continued to support European natural gas prices yesterday, as rising electricity demand fuelled an increasing appetite for the energy source. The front-month TTF futures advanced by 6.8 per cent and ended the session at 32.65 euros per MWh. The contracts have had a volatile start to the day, with the contracts trading approximately three per cent below yesterday’s close after early gains of around one per cent.
Higher demand amid rising temperatures in the Northern Hemisphere and upward pressure on natural gas prices propelled coal higher yesterday. The Newcastle futures for delivery in September recorded a daily gain of 3.5 per cent, settling just above 151 dollars per tonne. The contracts for delivery in Rotterdam the month after next rose by 3.9 per cent and ended Tuersday’s session at 121.05 dollars per tonne.
Hopes that more support for the Chinese economy will materialise in the near future contributed to gains for iron ore yesterday. The September futures listed on the Singapore Exchange advanced by nearly two per cent and ended the session at 113.13 dollars per tonne. However, the contracts have remained near yesterday’s close in today’s session.
Mounting optimism over the Chinese demand outlook and improving prospects for the global economy supported base metal prices yesterday. The three-month aluminium futures listed on the LME advanced by 1.4 per cent, while the copper and zinc contracts gained 1.8 and 2.9 per cent, respectively. Nickel proved to be yesterday’s star performer, with the contracts settling 4.8 per cent above Monday's close.
After substantial gains on Monday following Russian drone attacks on Ukrainian port facilities along the Danube, yesterday’s session proved to be a bit less eventful for the grains futures trading in Chicago. The wheat futures for delivery in September advanced by 0.4 per cent, while the corn contracts shed 0.5 per cent. The August soybean futures declined by 0.5 per cent after beginning the week with healthy gains on Monday.
Freight and Bunker Markets
The Baltic Dry Index declined by 0.5 per cent on Tuesday, with the negative contribution originating in the mid-sized segments. The freight rate gauge for the Panamaxes declined by 1.6 per cent, while the indicator for the Supramaxes shed 0.5 per cent. The sub-indices for the Capesizes and the Handysizes remained broadly unchanged for the day.
With the exception of the clean tankers, the Baltic Exchange’s wet freight indices had a day in the red yesterday. The dirty tanker index declined by 2.0 per cent as concerns over global crude oil supplies continued to weigh on sentiments. The indicators for the LNG and LPG carriers retreated by 0.8 and 1.1 per cent, respectively. In contrast, the index for the clean tankers advanced for a fifth consecutive session amid a 1.1 per cent gain.
Rising crude oil prices supported bunker fuel prices in most cases on Tuesday. The VLSFO advanced by 1.5 per cent in Singapore and 0.8 per in Rotterdam while remaining broadly unchanged in Houston. The trading in MGO saw gains of around 1.5 per cent in Singapore and Rotterdam, while the daily increase in Houston was more substantial at 2.9 per cent.
The View from the Shipfix Desk
According to data released by the China Iron and Steel Association earlier in the month, Chinese steel exports rose by nearly a third during the first half of the year compared to the same period last year. However, the data also highlighted that export volumes declined on a month-on-month basis in June, the first such drop for the year. The increase in Chinese steel exports has been fuelled by low domestic demand as the country’s economic recovery faltered.
Still, Chinese steel exports may see a rebound in the coming months. Shipfix’s cargo order data for steel loading in Chinese ports saw a recovery in May and June, and, given the data set’s forward-looking properties, volumes shipped could see an increase in the coming month. However, the rebound is likely to be short-lived, as the current month is showing some weakness. With most of July behind us, volumes may be on course for a month-on-month decline of around fifteen per cent.
The average cargo size for steel loading in China has remained stable over the past few months. After a minor increase in March to around 31,000 tonnes, the typical steel cargo has stabilised at approximately 28,000 tonnes.
Data Source: Shipfix