By Ulf Bergman
A rebound for the Capesize freight rates contributed to the BDI advancing by more than thirteen per cent last week. Among the commodities, crude oil continued to recover as the global supply situation continued to look increasingly tight, while softer demand weighed on the other energy commodities and iron ore.
Macro/Geopolitics
The new week has begun with the Chinese statistics authority publishing the Purchasing Manager Indices for July. The reading for the manufacturing sector was marginally higher than the market expectations, but at 49.3, it was nevertheless in contraction territory. Hence, industrial production in the world’s second-largest economy can be expected to face continued headwinds. On the other hand, the PMI for the services sector remained expansionary at 51.5 but retreated from the previous reading, highlighting the continued challenges for the Chinese economy. The latest PMI data will provide additional impetus for more measures to support the Chinese economy.
According to data released today, the Eurozone returned to growth during the year's second quarter after stagnating during the early parts of the year. The bloc saw its aggregate GDP grow by 0.3 per cent compared to the year's first three months, marginally more than market expectations.
In the week ahead, more PMI data will be released, with the gauge for the US manufacturing sector published on Tuesday and the indicator for the services sector following suit on Thursday. The indices will provide additional information on the health of the US economy and give some more clues for the future direction of US interest rates. Furthermore, the Caixin PMI for the Chinese manufacturing sector will provide an alternative angle to the state of affairs in the country when it is released tomorrow.
Commodity Markets
Crude oil extended gains into a fifth consecutive week as an improving Chinese demand outlook and concerns over the global supply situation supported prices. The October Brent futures advanced by 4.4 per cent over the course of the week and ended Friday’s session at 84.41 dollars per barrel. The positive momentum has been maintained into the new week amid gains of around half a per cent during Monady’s early trading.
In contrast to crude oil, European natural gas futures declined sharply last week as the heatwave affecting the southern parts of the continent started to subside and put pressure on demand. The lower demand and high inventory levels contributed to the September TTF contracts recording a weekly decline of 9.1 per cent and settling at 26.88 euros per MWh on Friday. However, some of last week’s losses have been recovered during the early parts of today’s session, with the contracts trading around one per cent above Friday’s close.
Coal gave up some of the previous week’s gains during the past five trading sessions, as falling natural gas prices contributed to lower demand. The Newcastle futures for delivery in September recorded a weekly decline of 0.6 per cent, despite gains during Monday and Tuesday, and settled at 142.25 dollars per tonne on Friday. The contracts for delivery in Rotterdam in September fell by 5.0 per cent last week, ending Friday’s session at 108.25 dollars per tonne.
The iron ore futures listed on the Singapore Exchange had a volatile week, with the September contracts ending Friday’s session at 106.67 dollars per tonne amid a decline of 4.6 per cent for the week. Uncertainty over the Chinese demand outlook and a stronger dollar contributed to the losses. The new week has begun with modest gains, with the contracts trading around half a per cent above Friday’s settlement.
Despite the dollar gaining ground last week, the base metals advanced amid hopes of more support for the Chinese economy. The three-month nickel and zinc futures listed on the LME led the way higher with weekly gains of 7.4 and 5.3 per cent, respectively. The copper and aluminium contracts saw more modest gains, with the former rising by 2.5 per cent and the latter advancing by 0.8 per cent.
After a few weeks of extensive gains for the grain and oilseed futures amid rising uncertainty over global supplies, last week delivered more moderate price movements. The September wheat futures trading in Chicago recorded weekly gains of 1.0 per cent, while the soybean contracts edged up by a quarter of a per cent. In contrast, the corn futures declined by 1.1 per cent.
Freight and Bunker Markets
The Baltic Dry Index bounced back last week, with the Capesizes providing much of the fuel for the gains. The headline index advanced by 13.5 per cent over the week, with much of the increase realised on Wednesday. After a surge of more than 20 per cent in the middle of the week, the freight rate indicator for the Capesizes recorded a weekly gain of 26.9 per cent, with falling supply providing support. The Panamaxes also ended the week in the black, with the sub-index for the segment advancing by 5.5 per cent amid gains during the second half of the week. In contrast, freight rates in the smaller segments retreated during the past week. The gauges for the Supramaxes and Handysizes shed 4.2 and 1.0 per cent, respectively.
The Baltic Exchange’s wet freight indices also had a week of mixed performances. Expectations of lower crude oil supplies continued to weigh on freight rates for the dirty tankers, with their freight index declining by 7.1 per cent during the week. The LNG and LPG freight indicators also ended the week in the red with losses of 0.3 and 6.0 per cent, respectively. On the other hand, the clean tanker index advanced for a second week and recorded a gain of 14.3 per cent.
The trading in bunker fuels recorded substantial gains across the world’s leading maritime hubs last week. The VLSFO advanced by 7.0 per cent over the past five sessions in Singapore, with gains in Rotterdam and Houston somewhat lower at 6.4 and 3.4 per cent, respectively. The MGO had an even stronger week, with price increases in Houston and Rotterdam topping 10.5 per cent. The latter fuel also had a strong week in Singapore amid gains of 8.4 per cent.
The View from the Shipfix Desk
US September rough rice futures have seen continued volatility during July, with the contracts gaining nearly ten per cent during the middle of the month. However, the contracts have come under renewed pressure during the past week, with losses exceeding four per cent. While prices are below recent highs, they remain high in a historical context. Prices have been supported by concerns over global supplies amid poor growing conditions in some key regions and Indian export restrictions.
Aggregate global cargo order volumes for rice also continue to support elevated rice prices. While a minor increase in July may have contributed to the recent downward pressure on the futures, the volumes remain depressed compared to recent years. Also, large parts of July’s volumes were recorded during one week in the middle of the month. Hence, as the demand for seaborne transportation of rice has retreated since the middle of the month, prices may see a recovery in the near term.
Data Source: Shipfix