The Baltic Dry index retreated on Tuesday, following two sessions of gains. Weak cargo ordering activities in the capesize and panamax segments caused the headline index to retreat by nearly three per cent. Easing tensions in the Middle East contributed to losses for energy commodities while receding optimism over the Chinese economy weighed on iron ore and base metals.
By Ulf Bergman
Macro/Geopolitics
Despite an unexpected drop into contraction territory for the NY Empire State Manufacturing Index, the US dollar continued to strengthen yesterday. The greenback’s current strength is the result of investors downgrading their expectations regarding interest rate cuts amid mounting expectations that the Federal Reserve will be more cautious in the coming months than previously anticipated. The US dollar index gained for a sixth consecutive session, ending the day at the highest level since early August.
Commodity Markets
Crude oil prices fell sharply yesterday as tensions in the Middle East eased somewhat amid suggestions that Israel will not attack Iranian oil installations. The receding concerns over supply disruptions in the region contributed to a loss of 4.1 per cent for the December Brent futures, which ended the day at 74.25 dollars per barrel. After some early gains today, the contracts have retreated into the red amid losses of around half a per cent.
The easing of geopolitical tensions also weighed on European natural gas prices yesterday as risks to LNG shipments from the Middle East subsided. The front-month TTF futures recorded a daily decline of 1.4 per cent, ending the day at 39.97 euros per MWh. The contracts have continued to decline in today’s session and are trading approximately one per cent below Tuesday’s close.
The benchmark futures for the Asian and European coal markets also faced headwinds yesterday amid lower oil and natural gas prices. The futures for delivery in Rotterdam next month shed 2.0 per cent, ending the day at 120.65 dollars per tonne. The front-month Newcastle contracts settled at 148.75 dollars per tonne, following a 1.4 per cent decline for the day.
After two days of healthy gains, iron ore faced headwinds yesterday as the optimism following Saturday’s briefing by China’s Finance Minister faded. The November futures listed on the SGX declined by 1.5 per cent, ending the session at 105.95 dollars per tonne. The negative sentiments have carried into today’s activities, with the contracts trading more than one per cent below yesterday’s closing price.
The bearish sentiments also weighed on the base metal futures trading on the LME, which extended on Monday’s losses during yesterday’s session. The three-month copper and nickel futures shed more than 1.3 per cent, while the aluminium and zinc contracts retreated by nearly one per cent.
During yesterday's trading, an improved supply outlook delivered by the USDA weighed on the grains and oilseed futures listed on the CBOT. The December wheat contracts declined by 1.0 per cent, while the corn futures dropped by 1.7 per cent. The November soybean futures recorded a daily loss of 0.5 per cent.
Freight and Bunker Markets
After two consecutive sessions of gains, the Baltic Dry Index turned south on Tuesday amid headwinds for the two largest segments. The headline index shed 2.6 per cent and settled at the lowest level since the final days of August.
The freight gauge for the capesizes recorded a daily decline of 3.6 per cent amid soft demand in the Atlantic basin. The indicator for the panamaxes shed 3.2 per cent, with low cargo order volumes in the Atlantic and Pacific basins weighing on freight rates. The indices for the supramaxes and handysizes remained broadly unchanged.
The Baltic Exchange’s wet freight indices had a session of mixed fortunes yesterday. The gauge for the clean tankers advanced by 1.1 per cent, while the indicator for their dirty siblings edged up marginally. The spot indices for the liquified gas carriers faced pressure yesterday, with the LNG gauge shedding 8.7 per cent and the LPG indicator retreating by 3.2 per cent.
The sharp decline for crude oil during yesterday’s trading put pressure on bunker fuel prices. The VLSFO dropped by 3.8 per cent in Houston, while losses in Singapore and Rotterdam were somewhat smaller at 3.3 and 2,2 per cent, respectively. The MGO declined by around 3.6 per cent in the three bunkering hubs.
The View from the Shipfix Desk
Chinese steel rebar futures have staged a significant recovery over the past month. After declining by more than twenty per cent between the end of May and early September, the November contracts listed on the Shanghai Futures Exchange have gained around fifteen per cent over the past six weeks. While hopes that more stimulus for the Chinese economy will improve the demand situation have contributed to higher prices, a seasonal recovery for steel buying is also likely to have supported prices in recent weeks.
Cargo order volumes for steel exports loading in Chinese ports have declined significantly in recent weeks. While lingering effects from the Golden Week may have contributed to the weakness, recent depressed volumes may also signal rising domestic demand for steel. Despite some weekly spikes, demand for seaborne transportation of steel exports from Chinese ports has been trending lower since the beginning of the third quarter.
The cargo order volumes recorded during the past two weeks are around half of the weekly average for the year’s first nine months. Unless there is a significant increase in demand during the coming days, the current week looks set to record volumes similar to the previous two. Hence, Chinese steel exports are on course for a weak October.
Data Source: Shipfix