By Ulf Bergman
Dry bulk freight rates advanced last week, with the BDI gaining more than eleven per cent. While all segments were in the black, the Capesizes were mainly responsible for the headline index’s solid performance. A stronger dollar contributed to headwinds for many commodities, but crude oil went against the flow amid renewed concerns over global supplies.
Macro/Geopolitics
The US dollar continued to strengthen last week as markets digested news that new unemployment claims in the US fell to their lowest in over six months. The development increased the likelihood of a further US interest rate hike in the coming months. It contributed to the US dollar index reaching the highest level since early March on Friday, following a 0.8 per cent gain for the week. The stronger US dollar translated into headwinds for parts of the commodities markets.
In the week ahead, further clues to how the Federal Reserve will act during the remainder of the year will be provided on Wednesday with the release of the inflation data for August. The markets expect to see an annual inflation rate of 3.6 per cent for August, which is somewhat higher than the 3.2 per cent recorded in July.
The week will also provide more insights into the state of the Chinese economy, with the release of retail sales and industrial production data on Friday. Markets expect both data sets to be higher than the readings for July.
Commodity Markets
Crude oil advanced last week following news that Saudi Arabia and Russia are extending their unilateral production curbs. The November Brent futures increased by 2.1 per cent over the course of the week, settling at 90.45 dollars per barrel on Friday. The new week has begun with the contracts swinging between minor gains and losses.
After substantial losses on Monday and Wednesday, the European natural gas futures ended the week with significant gains during the last two sessions as Australian gas workers voted to go on strike. The threat of disruptions to the global LNG flows saw the front-month futures gaining more than five per cent on both Thursday and Friday. Still, the early losses meant that the contracts ended in the red for the week, settling at 34.51 euros per MWh amid a weekly loss of 3.1 per cent. The bullish momentum from the end of last week has carried into today’s trading session with gains of around seven per cent.
Last week’s retreat for the European natural prices futures contributed to headwinds for the Rotterdam coal contracts. The front-month futures declined by 2.3 over the course of the week and settled at 114.30 dollars per tonne on Friday. In contrast, the Newcastle futures for delivery next month recorded a marginal gain of 0.3 per cent for the week, settling at 159.50 dollars per tonne on Friday.
Renewed concerns over the Chinese demand outlook and a stronger US dollar saw iron ore prices losing steam as the week progressed and giving up early gains. The October futures listed on the Singapore Exchange eventually settled at 113.33 dollars per tonne on Friday amid a weekly loss of 0.6 per cent. However, the contracts have delivered robust gains in today’s session and are trading nearly four per cent above Friday’s close.
The base metals sailed into strong headwinds last week, with a stronger dollar providing much of the resistance. In addition, weak Chinese economic data released at the beginning of the week weighed on the demand outlook and prices. The three-month copper futures trading on the LME recorded a weekly decline of 2.4 per cent, while the aluminium contracts shed 2.4 per cent. The zinc futures retreated by 1.7 per cent, while the nickel contracts proved to be the week’s laggards with a drop of 4.9 per cent.
The grain and oilseed futures trading in Chicago only recorded minor price moves last week. The December wheat contracts ended the week broadly unchanged after giving up modest early gains on Thursday and Friday. The corn December futures advanced by half a per cent, while the November soybean contracts saw losses of the same size.
Freight and Bunker Markets
The Baltic Dry Index advanced by 11.4 per cent over the course of the past week. While all dry bulk segments had a week in the black, much of the headline index’s performance originated from the Capesizes. The largest vessels saw their sub-index advancing by 24.9 per cent as robust order volumes during the week offset an early spike in tonnage supply. The solid gains meant that the C5TC ended the week at 10,693 USD. Beyond the Capesizes, the Supramaxes and Handysizes also had a good week with improving sentiments. The sub-index for the former segment advanced by 10.1 per cent, and the latter recorded a weekly gain of 5.7 per cent. The Panamaxes proved to be the past week’s laggards, with the segment’s freight rate indicator advancing by a meagre 0.7 per cent.
The Baltic’s clean and dirty tanker indices faced considerable headwinds last week as the extension of production cuts by Saudi Arabia and Russia weighed on sentiments. The former freight gauge declined by 8.7 per cent over the week, while the latter shed 3.6 per cent. In contrast, the freight indices for the gas carriers had a solid week. The strike action by Australian gas workers contributed to the LNG freight indicator advancing by 13.1 per cent. However, the LPG tankers were the week’s star performers, with a gain of 19.3 per cent.
Bunker fuel prices mirrored the developments in the crude oil markets last week, with gains for VLSFO and MGO across all of the world’s major shipping hubs. The former advanced by around two per cent in Singapore and Rotterdam, while the trading in Houston recorded somewhat more modest gains of 1.3 per cent for the week. For MGO, Rotterdam led the way higher with a weekly advance of 3.6 per cent, while increases in Houston and Singapore topped 2.5 per cent.
The View from the Shipfix Desk
Even if the optimists among us suggest that the recent Chinese data are pointing towards a stabilisation of the world’s second-largest economy, the country’s post-COVID recovery has failed to match the high expectations on display at the beginning of the year. As a result of the underwhelming rebound and the continued travails for the country’s beleaguered property sector, Chinese demand for steel has been under pressure for much of the year. Against this backdrop, Chinese steel rebar prices are currently around thirteen per cent below the levels recorded in the middle of March, despite a rebound during June and July.
After a change in taxation rules a few years ago, Chinese steel production became increasingly focused on the domestic market. However, the drop in demand for steel domestically has led to a rebound in Chinese exports. In a sign that domestic demand remains weak, cargo order volumes for steel products loading in China topped six million tonnes in August. However, recent weeks have seen volumes declining, suggesting that a recovery may be underway. Still, volumes remain relatively high and highlight continued challenges for the Chinese economy.
The typical cargo size for steel loading in China has remained relatively stable, just below 30,000 tonnes, for the year so far. Hence, the robust Chinese steel exports are providing some support for the freight rates in the smaller segments.
Data Source: Shipfix