Weakness across all dry bulk vessel segments on Tuesday kept the BDI in the red for a second consecutive session. The Capesizes provided most of the negative momentum as cargo order volumes remained subdued. The commodities had experienced a mixed session, with a stronger dollar delivering some headwinds.
By Ulf Bergman
Macro/Geopolitics
The US dollar gained ground yesterday as investors grew increasingly concerned about the inflation data due for release later this week amid recent solid labour market numbers. A decreased likelihood of a rate cut in March saw the US dollar index rise by a third of a per cent on Tuesday. While the implied probability that the Federal Reserve will lower interest rates in late March remains better than even at 64 per cent, it is a far cry from last week’s near certainty of 90 per cent.
According to reports, the Houthi rebels launched their largest attack to date on commercial shipping earlier today. All missiles and drones appear to have been shot down by Western naval assets operating in the area before reaching their intended targets. However, the escalation is nevertheless likely to lead to more vessels diverting around the Cape of Good Hope rather than risking being targeted in the Red Sea.
Commodity Markets
Crude oil maintained the pattern for the year so far yesterday, with a daily swing between gains and losses. The March Brent futures recovered much of Monday’s losses yesterday as concerns over global supplies grew amid rising tensions in the Middle East and halted production in Libya. The contracts ended Tuesday’s trading day at 77.89 dollars, following a 2.3 per cent gain for the day. In today’s session, they initially retreated into the red, but have since reversed course and are trading around one per cent above yesterday’s close.
Despite cold weather across large parts of the continent, European natural gas prices declined for a second consecutive day on Tuesday as the market remained well supplied. The front-month TTF futures declined by 3.0 per cent, settling at 30.64 euros per MWh. However, the contracts have recovered some of the recent losses today amid gains of around three per cent.
For coal, the futures for the Asian and European markets faced diverging fortunes on Tuesday. The lower natural gas prices in Europe contributed to the contracts for delivery in Rotterdam next month declining by 1.4 per cent to 108.15 dollars per tonne. In contrast, cold weather in parts of China fuelled demand for coal in Asia, with the front-month Newcastle rising by 3.4 per cent yesterday to close at 134.20 dollars per tonne.
Iron ore continued to retreat yesterday as lower margins for Chinese steel mills weighed on the demand outlook. The futures for delivery next month listed on the SGX recorded a marginal decline of 0.2 per cent on Tuesday, settling at 137.76 dollars per tonne. The contracts have faced even stiffer headwinds in today’s session, with losses approaching four per cent.
The appreciating US dollar contributed to minor losses for most base metals. The three-month copper futures listed on the LME ended the day 0.9 per cent below Monday’s close, while the nickel and zinc contracts recorded marginal daily losses. In contrast, the aluminium futures advanced by 0.6 per cent as rising demand offset the negative effects of a stronger dollar.
The March grain and oilseed futures listed on the CBOT ended Tuesday’s session in the black. The wheat contracts led the way higher amid reports of solid US export sales and ended the day with a gain of 2.3 per cent. The corn and soybean futures recorded daily advances of 0.9 and 0.2 per cent, respectively.
Freight and Bunker Markets
The Baltic Exchange’s dry bulk indices recorded a second consecutive session with losses across the board. The Baltic Dry Index shed 7.3 per cent, with the Capesizes contributing to much of the decline. The sub-index for the largest vessels dropped by 9.7 per cent as cargo order volumes in the Atlantic basin faced a slow start to the week. The freight indicator for the Panamaxes fell by 4.4 per cent as rising tonnage supply more than offset an improving demand situation. The gauges for the Supramaxes and Handysizes shed 2.7 and 2.8 per cent, respectively, amid weaker demand across most basins.
Losses were also the central theme for the Baltic’s wet indices yesterday but with one notable exception. The dirty tanker index went against the flow and gained 2.5 per cent, with the increasing tensions in the Middle East contributing to bullish sentiments. In contrast, the clean tankers saw their gauge retreat by 1.0 per cent. The spot freight indicators for the liquified gas carriers delivered yesterday’s most significant losses, with the index for LPG declining by 9.1 per cent and the gauge for LNG dropping by 21.6 per cent.
The trading in bunker fuels experienced a mixed session across the world’s leading maritime hubs yesterday. In Singapore, both the VLSFO and MGO retreated. The former fuel shed 1.3 per cent, while the latter declined by 0.8 per cent. In contrast, the two fuels advanced in Houston. The MGO led the way higher in the US port with a 1.0 per cent gain, while the VLSFO recorded a modest 0.3 per cent gain for the day. The picture was more mixed in Rotterdam, with a 1.3 per cent loss for VLSFO, while MGO remained broadly unchanged.
The View from the Shipfix Desk
Following a solid start to the new year, fortunes have shifted for the Capesizes during the early parts of this week. The Baltic Exchange’s index for the segment declined by 14.5 per cent over the week’s first two sessions, more than offsetting the 11.8 per cent gain recorded last week. However, the robust performance for the Capesizes during the previous week was in stark contrast to developments in the smaller segments, where freight rates declined sharply.
The past week’s rising spot freight rates for the Capesizes came as cargo order volumes recovered sharply following the lack of activities during the Christmas and New Year celebrations. All basins benefitted from the rebound, but, in absolute numbers, activities in the Atlantic dominated proceedings. However, the current week has seen a sharp reversal in demand, especially in the Atlantic. Typically, order volumes are more substantial during the week’s first few days, but that has not been the case this week. Hence, aggregate volumes are unlikely to match last week’s solid reading.
In addition to weak demand, increasing tonnage supply has contributed to the weaker spot freight rates. The number of available vessels started to increase last week, but Monday saw a substantial jump. While the Atlantic dominated the increase in supply last week, the Pacific has seen the most significant growth in the past two days. The rising number of available Capesizes and subdued demand suggest that the spot rates will continue to face headwinds in the short term.
Data Source: Shipfix