Developments in the Middle East contributed to some significant swings in the commodity markets during yesterday’s trading activities. On the other hand, weak demand weighed on most dry bulk vessel segments, contributing to a second day of losses for the Baltic Dry Index.
By Ulf Bergman
Macro/Geopolitics
Geopolitical developments dominated yesterday’s news flow and contributed to significant market moves. Initially, a US warning of an imminent Iranian missile attack on Israel sent crude oil prices soaring and weighed on equity markets. As the actual attack unfolded later in the day, the Israeli air defences proved their worth, and markets calmed somewhat. Still, the latest escalation has increased the stakes in an already volatile situation. As Israel has already stated that the country will deliver a significant response to the attack, more market volatility can be expected as traders await the subsequent developments.
Beyond geopolitics, mixed economic data were released in the US yesterday. The Purchasing Managers’ Index for the country’s manufacturing sector fell short of expectations and remained unchanged at 47.2, well into contraction territory. On the other hand, the number of job openings rose by more than expected in August, topping eight million. However, the latter data set may prove to be an outlier, as many other indicators point towards a slowdown in the US labour market.
Across the Pacific, China began its Golden Week holidays on Tuesday, lasting until Monday next week. The absence of many Chinese buyers during the celebrations will weigh on trading and cargo order volumes during the coming week.
Commodity Markets
During yesterday's session, crude oil prices initially retreated towards the 70-dollar level as markets focused on a potential supply increase in the coming months. However, a US warning that Iran was preparing a sizeable missile attack on Israel sent prices higher, with the December Brent futures briefly trading above 75 dollars per barrel. However, as the actual attack unfolded later in the day, crude oil gave up some of the gains. The December Brent contracts ended yesterday’s trading session at 73.56 dollars per barrel amid a 2.6 per cent increase for the day. The contracts have continued to gain in today’s session and are trading approximately three per cent above yesterday’s close.
After limited losses on Monday, European natural gas prices moved significantly higher yesterday, supported by the rising geopolitical tensions. The front-month TTF futures rose by 2.4 per cent, settling at 39.27 euros per MWh. The contracts have reversed course in today’s trading amid losses of around half a per cent.
The Chinese holidays contributed to lower demand and weighed on coal prices yesterday. The Newcastle futures for delivery next month declined by 2.7 per cent, ending the day at 142.65 dollars per tonne. The front-month Rotterdam contracts shed 1.2 per cent, settling at 118.90 dollars per tonne.
After significant gains over the past week, iron ore faced some headwinds yesterday as the Chinese holidays weighed on trading volumes. The November SGX futures recorded a daily loss of 1.6 per cent as they settled at 108.04 dollars per tonne. In today’s trading, the contracts have edged up marginally.
The base metals benefitted from optimism over the Chinese demand outlook, with healthy gains across the board. The three-month copper and aluminium LME futures rose by around 1.5 per cent, recovering Monday's losses. The zinc and nickel contracts gained 1.8 and 1.1 per cent, respectively.
The December wheat and corn futures listed on the CBOT extended on Monday’s gains during yesterday’s session amid rising concerns over supplies and robust demand. The wheat contracts rose by 2.6 per cent, while the corn futures advanced by 1.0 per cent. On the other hand, the November soybean futures ended the day broadly unchanged.
Freight and Bunker Markets
The Baltic Dry Index declined for a second day on Tuesday, with most segments facing headwinds and contributing to the headline indicator’s 2.6 per cent decline. The gauge for the capesizes fell by 3.4 per cent amid weak cargo order volumes across the major basins. The index for the panamaxes recorded a fifth consecutive day in the red as it retreated by 2.0 per cent, weighed down by weak demand in the Indian Ocean and the Pacific. The indicator for the supramaxes shed 1.0 per cent amid limited demand outside the Atlantic basin. In contrast, the index for the handysizes recorded a daily gain of 0.3 per cent.
The Baltic Exchange’s wet freight indicators experienced yet another mixed session on Tuesday. The index for the dirty tankers recorded a daily gain of 0.5 per cent, while the gauge for their clean siblings dropped by 3.1 per cent. After remaining unchanged on Monday, the indicator for the LNG carriers shed 0.5 per cent. The spot index for the LPG tankers recovered much of its recent losses amid a surge of 57 per cent.
Yesterday, the trading in bunker fuels experienced significant differences across the world’s leading maritime hubs. The early weakness in the crude oil markets weighed on the activities in Singapore, with the VLSFO shedding 3.3 per cent and the MGO retreating by 1.6 per cent. In Rotterdam, the two fuels ended the session (broadly) unchanged. However, the VLSFO and MGO recorded gains in Houston as crude oil rose late in the day amid increasing tensions in the Middle East. The former fuel rose by 1.1 per cent, and the latter gained 0.8 per cent in the US port.
The View from the Shipfix Desk
Despite two days of significant losses recently, copper prices have risen by more than ten per cent over the past month. While recent Chinese announcements that the country will introduce extensive monetary and fiscal measures to support economic growth have contributed to the gains, prices rose during the first half of September despite weak Chinese economic data.
The three-month futures for the red metal trading on the London Metal Exchange have had an eventful year so far. After trending upward for much of the year’s first five months, the contracts gave up much of the gains during June and July. However, the contracts have been in recovery mode over the past two months, albeit in volatile conditions.
After several months of relative stability, global cargo order volumes for copper rose in May and remained elevated for another two months. The development contributed to a better-supplied copper market and weighed on prices during June and July. However, during the past two months, demand for seaborne transportation of copper has returned to the levels seen during the year’s first four months, contributing to the recent rebound for copper prices.
After a period of declining Chinese demand for copper shipments, recent weeks have seen a tendency towards a rebound in cargo order volumes due for discharge in Chinese ports. While last week’s robust volumes could have been an effect of the upcoming Golden Week holidays, recent announcements that the Chinese leadership will introduce more support measures for the world’s second-largest economy may also have contributed to the increase. Still, the aggregate cargo order volumes for September suggest that copper prices will remain elevated.
Data Source: Shipfix