The Baltic Dry Index retreated for a sixth consecutive session on Tuesday, with the capesizes primarily responsible for the headline indicator’s 4.3 per cent decline amid low cargo order volumes. Among the commodities, there were mostly gains during yesterday’s trading, but iron ore and Newcastle coal were notable exceptions.
By Ulf Bergman
Macro/Geopolitics
Yesterday, the International Monetary Fund released its updated growth projections for this and next year. While the expected growth rate for the current year was left unchanged at 3.2 per cent, the IMF reduced its expectation for 2025 by 0.1 per cent to align with this year. The downward revision of its earlier prediction came amid rising geopolitical uncertainty. The fund also highlighted that the rising international tensions are fuelling downside risks for the global economy. Beyond growth, the IMF expects that global inflation will retreat to 4.3 per cent next year from 5.8 per cent this year.
Commodity Markets
A renewed focus on the situation in the Middle East supported crude oil prices yesterday as traders awaited the Israeli response to the recent Iranian missile attack. The December Brent futures ended the session at 76.04 dollars per barrel, following a 2.4 per cent gain for the day. However, the contracts have retreated by around two per cent in today’s trading amid a larger-than-expected increase in US crude oil inventories.
Fears that developments in the Middle East will disrupt LNG exports from the region contributed to higher European natural gas prices yesterday. The front-month TTF futures advanced by 1.7 per cent, ending Tuesday’s session at 40.70 euros per MWh. The contracts have continued to gain in today’s session and are trading approximately one per cent above yesterday’s close.
For the benchmark futures for the Asian and European coal markets, yesterday’s session developed in opposite directions. The front-month futures for delivery in Rotterdam rose by a quarter of a per cent, supported by higher natural gas prices, settling at 117.90 dollars per tonne. In contrast, the November Newcastle futures shed 1.1 per cent amid reports of higher Chinese production, ending the day at 144 dollars per tonne.
After two sessions of gains, iron ore came under renewed pressure yesterday as concerns mounted over the Chinese demand outlook amid suggestions by the IMF that the stimulus programmes will be insufficient to lift demand. The November SGX futures declined by 1.2 per cent, ending the session at 100.61 dollars per tonne. In today’s trading, the contracts have slipped below the 100-dollar level amid losses of around two per cent.
After losses across the board on Monday, most base metals gained yesterday, supported by higher demand. The three-month copper futures listed on the LME rose by a quarter of a per cent, while the aluminium and zinc contracts gained 1.5 and 2.0 per cent, respectively. On the other hand, the nickel futures extended losses into a seventh consecutive session amid a 2.3 per cent decline for the day.
The CBOT oilseed and grain futures for delivery in the coming months rose yesterday, with robust export sales among the contributing factors. The December wheat futures ended the session 0.7 per cent higher than the previous close, while the corn contracts recorded a daily gain of 1.7 per cent. The November soybean futures settled 1.1 per cent higher than on Monday.
Freight and Bunker Markets
The Baltic Dry Index fell by 4.3 per cent yesterday, reaching its lowest level since early February. The capesizes remained the main culprits for the headline index’s decline, with the gauge for the largest vessels dropping by 8.4 per cent amid a weak start to the week for demand in the major basins. The freight indicator for the panamaxes shed 1.4 per cent as low cargo order volumes offset declining vessel availability. In line with recent sessions, the indices for the supramaxes and handysizes recorded only minor moves on Tuesday. The former shed 0.1 per cent, and the latter gained 0.4 per cent.
The Baltic Exchange’s wet freight gauges had a mixed session yesterday, following mostly limited moves on Monday. The dirty tanker index advanced by 1.0 per cent, while the indicator for their clean siblings remained unchanged for the day. In contrast, the indices for the liquified gas tankers endured substantial headwinds. The spot gauge for the LNG carriers fell by 5.0 per cent, while the LPG indicator dropped by 6.8 per cent.
After mostly limited price moves on Monday, the trading in bunker fuels had a session of diverging fortunes yesterday. The VLSFO rose by 0.2 per cent in Singapore and 0.6 per cent in Houston while declining by 1.0 per cent in Rotterdam. The MGO retreated marginally in Singapore while gaining 2.8 per cent in the Dutch port and 1.1 per cent in the US bunkering hub.
The View from the Shipfix Desk
After gaining ground during the second half of September and early October, the front-month Newcastle coal futures have declined by around six per cent over the past fortnight. Still, the recent decline is not out of the ordinary as the contracts have barely left the 135-155 dollars per tonne interval over the past eight months. Weaker demand and higher Chinese production have contributed to the decline in the past two weeks.
While Indian demand for seaborne imports of the dirtiest of fossil fuels has been stable over the past three weeks, the weekly cargo order volumes were significantly lower than recorded earlier in the year. Additionally, the average for the first three weeks of October is 48 per cent lower than a year ago.
Unlike last year, demand for seaborne transportation of coal to Indian ports has been trending lower since the beginning of the second quarter. While the year began with robust monthly cargo order volumes, the total for the year’s first nine months is two per cent lower than during the same period last year.
Cargo order volumes for coal due for discharge in India remained stable from June to August but have since resumed the decline. September recorded a month-on-month decrease in demand by around sixteen per cent. The current month is on course for another monthly drop, albeit at a lower rate. Hence, Indian demand is unlikely to support coal prices in the near future.
In absolute terms, the lower Indian demand has seen volumes from Indonesia decreasing the most. Still, the island nation has broadly maintained its market share in the Indian seaborne coal trade. On the other hand, South Africa and, to a lesser extent, Mozambique have seen volumes above the average for the past two years, while the US and Australia have lost market share.
Data Source: Shipfix