By Ulf Bergman
Macro/Geopolitics
Following last week’s release of China’s official manufacturing PMI, which suggested that the country’s industrial sector remained in contraction territory for a third consecutive month, the Caixin manufacturing PMI painted a somewhat less negative picture today. While the alternative gauge, which has a greater focus on smaller and exporting companies, remained in expansionary territory last month and was stronger than expected, it nevertheless declined from the May reading. Hence, it highlighted the continued headwinds for the world’s second-largest economy. The reading of 50.5 was somewhat higher than the consensus projection of 50.2, but it will likely add fuel to the calls for more support measures to support the Chinese economy.
In the week ahead, further indicators for the health of the US economy will be published. Later today, the PMI for the country’s manufacturing sector will be released, while the gauge for the services sector will be presented on Thursday. Friday will deliver the verdict on the state of the US labour market, with the release of the unemployment and payroll data. Given that the resilience of the US labour market has continued to fuel consumer spending and inflation, the state of the US job market is likely to provide clues for the timing of the next interest rate hikes.
Commodity Markets
Crude oil prices bounced back last week after a retreat during the previous five trading sessions. The Brent August futures recorded a weekly gain of 1.9 per cent and ended Friday’s session at 75.41 dollars per barrel as tight global supplies provided support. The contracts have also begun the second half of the year in the black amid limited gains in today’s early trading.
European natural gas prices soared last week as increasing global competition for LNG cargoes and rising temperatures supported prices. The front-month futures rose by 8.1 per cent and settled at 37.10 euros per MWh on Friday. The new week has begun in the red, with the contracts trading around three per cent below Friday’s close.
Coal joined the other energy commodities on their upward path last week as global demand increased amid higher temperatures in the Northern Hemisphere. The Newcastle futures for delivery in August gained 11.0 per cent over the course of the past week, settling at 156.30 dollars per tonne on Friday. The contracts for delivery in Rotterdam next month recorded a weekly gain of 8.6 per cent and ended Friday’s trading at 122.05 dollars per tonne.
Despite losses during the second half of last week, the iron ore futures listed on the Singapore Exchange delivered modest gains over the past five sessions. The August contracts ended the week at 109.07 dollars per tonne following a 1.8 decline on Friday but were still 1.6 per cent higher for the week.
The base metals had a mixed week amid concerns over the global demand outlook and a marginally stronger dollar. The copper and zinc three-month futures listed on the LME recorded weekly gains of 0.3 and 1.0 per cent, respectively. In contrast, the aluminium and nickel contracts faced headwinds, with the former declining by 1.1 per cent and the latter shedding 3.7 per cent.
The grain and oilseed futures trading in Chicago faced extensive volatility last week. The soybean August futures ended the week with a 2.7 per cent gain following a solid recovery on Friday as data showed a sizeable decline in US acreage. In contrast, the September wheat futures declined by 12.8 per cent as global supply concerns faded. The September corn futures also faced considerable headwinds and dropped by 16.5 per cent as USDA data showed higher-than-expected planting areas for the crop.
Freight and Bunker Markets
After three weeks of gains, the Baltic Dry Index ended the past week in the red. The headline index recorded a weekly decline of 12.0 per cent amid weakness for all segments apart from the Supramaxes. The sub-index for the largest vessels dropped by 18.1 per cent as order volumes in the segment came under pressure during the week. The Panamaxes also faced considerable headwinds during the past week, with their freight rate indicator declining by 8.6 per cent amid weak demand. For the smaller vessels, last week was less eventful, with the gauge for the Handysizes declining by 2.0 per cent, while the Supramaxes gained 0.6 per cent.
The Baltic’s tanker indices had a mixed week. The dirty freight index recorded a weekly decline of 5.2 per cent as weaker demand weighed on rates. On the other hand, the clean tankers saw their freight rate indicator advance by 2.6 per cent. The gas carriers had a solid week, with the indicators for the LNG and LPG freight rates advancing by 4.1 and 2.3 per cent, respectively.
Despite falling bunker fuel prices last week, the trading in VLSFO and MGO recorded monthly gains for June. The VLSFO advanced by 5.8 per cent over the past month in Singapore, while the gains in Houston and Rotterdam were more modest at 3.5 and 0.4 per cent, respectively. The MGO saw the largest monthly gains in Houston, where the fuel advanced by 7.9 per cent. In Rotterdam and Singapore, the trading in the fuel recorded gains of 5.3 and 2.8, respectively, for the month.
The View from the Shipfix Desk
While European coal prices have recorded gains of more than 30 per cent since the end of May, they remain around 50 per cent below the levels recorded a year ago as concerns over the continent’s energy supplies have eased. Following the implementation of sanctions on Russian coal shipments, European buyers found alternative supplies of the dirtiest of fossil fuels around the world, with the Transatlantic trade being one of the main beneficiaries. However, unseasonally high natural gas inventories have seen the continent’s appetite for coal declining.
The past month has seen a substantial drop in demand for seaborne transportation of coal from the US to Europe, with cargo order volumes declining by more than 60 per cent. The decline contributed to aggregate cargo order volumes for US coal exports falling by approximately a quarter month-on-month in June. However, a recent increase in demand for US coal in China and Asia offset some of the negative effects of the declining European appetite.
Data Source: Shipfix