The Baltic Dry Index declined for a fourth consecutive day on Thursday amid weakness across all dry bulk vessel segments. In contrast, energy commodities rose during yesterday’s session amid mounting geopolitical tensions and higher demand. On the other hand, base metals and iron ore had a mixed session, while grains and oilseeds faced headwinds.
By Ulf Bergman
Macro/Geopolitics
An increasing focus on geopolitics dominated trading activities in the markets yesterday. The safe-haven properties of the US dollar saw the greenback extend on recent gains, with the dollar index ending the day at the highest level since early November 2022. In addition, the escalation in the war in Ukraine put a renewed focus on supply disruptions for many commodities, notably natural gas and crude oil, contributing to higher prices.
In the macroeconomic space, robust US labour data released yesterday indicated that the world’s largest economy remains strong, with weekly initial jobless claims unexpectedly falling to a seven-month low. The development led to many investors reassessing their expectations for further monetary easing by the Federal Reserve, with the future room for manoeuvre looking increasingly narrow, fuelling additional gains for the US currency.
Commodity Markets
Mounting geopolitical tensions, fuelled by an escalation in Ukraine, supported crude oil prices yesterday. The January Brent futures rose by 2.0 per cent, settling at 74.23 dollars per barrel. The positive momentum initially carried into today’s session amid gains of around half a per cent. Still, the contracts have since reversed course and are trading nearly one per cent below yesterday’s close.
Falling temperatures across parts of Europe supported demand for natural gas and pushed prices higher yesterday. The front-month TTF futures gained 3.2 per cent over the course of yesterday’s trading, ending the session at 48.30 euros per MWh. Like crude oil, the contracts initially continued to gain in today’s session but have since slipped into the red amid losses of more than one per cent.
The benchmark futures for the Asian and European coal markets gained ground yesterday amid higher natural gas and crude oil prices. The contracts for delivery in the port of Newcastle next month rose by 0.9 per cent, settling at 143.50 dollars per tonne. The front-month Rotterdam futures ended the session at 125.50 dollars per tonne, following a 1.5 per cent gain for the day.
After a brief dip into the red on Wednesday, iron ore continued to recover yesterday amid reports of higher Chinese steel production. The December SGX futures recorded a daily gain of 1.0 per cent, ending the session at 102.01 dollars per tonne. However, the contracts have retreated towards the 100-dollar level in today’s trading amid losses of around 1.5 per cent.
A stronger dollar weighed on most base metals yesterday. The three-month copper futures listed on the LME retreated by 0.9 per cent, while the aluminium and nickel contracts fell by 0.5 and 1.2 per cent, respectively. However, the zinc futures ended the session broadly unchanged.
After four sessions of gains, the December CBOT wheat futures shed 0.7 per cent yesterday as a stronger dollar weighed on demand. The corn contracts shed 0.8 per cent as US exports became more expensive. The January soybean futures recorded a third consecutive session in the red, amid a daily loss of 1.3 per cent, as demand from the biofuel industry looks set to weaken.
Freight and Bunker Markets
The Baltic Exchange’s dry bulk freight indicators retreated across the board on Thursday. The headline Baltic Dry Index declined by 2.5 per cent, a fourth consecutive session in the red. After a brief and marginal return to the black on Wednesday, the capesize index shed 3.1 per cent yesterday, with rising tonnage supply in the Atlantic and low demand in the Indian Ocean contributing to the headwinds. The gauge for the panamaxes recorded a daily loss of 2.8 per cent, weighed down by continued soft cargo order volumes. The gauges for the supramaxes and handysizes shed around half a per cent as weak demand offset falling vessel supply.
In contrast, the Baltic Exchange’s wet freight indicators had a day of gains or no changes. The gauges for the dirty and the LNG tankers were (broadly) unchanged, while the clean and LPG tanker indices rose by 6.4 and 3.5 per cent, respectively.
Yesterday’s trading in bunker fuels delivered mixed results across the globe’s leading maritime hubs. In Singapore, the VLSFO and MGO ended the session unchanged. In Rotterdam, the VLSFO edged up marginally while the MGO shed 0.3 per cent. The VLSFO gained 0.5 per cent in Houston, while the MGO rose by 1.0 per cent in the US port.
The View from the Shipfix Desk
Since the beginning of the year, zinc has been the better performer among the base metals. The rolling three-month futures listed on the London Metal Exchange have risen by more than twelve per cent since the beginning of January. During the same period, the copper and aluminium contracts increased by around five and ten per cent, respectively, while nickel retreated by more than five per cent.
Zinc has declined by more than one per cent since the beginning of November, weighed down by concerns over the demand outlook amid market disappointments over Chinese stimulus initiatives and a stronger dollar. In addition, the global market for zinc is expected to be oversupplied next year, which is adding further pressure on sentiments.
After a significant decline in August, global cargo order volumes for nickel concentrate have staged a robust recovery over the past three months. The monthly aggregates for September and October were only a few per cent lower than the average for the past two years. The positive momentum has accelerated during the current month, with the November reading likely to be among the highest in recent years. An increase in demand from Chinese importers and higher order volumes for nickel concentrate cargoes loading in Australia have contributed to the strong reading. As the smaller segments dominate the zinc trade, the development will support handysize freight rates.
The recent strong showing for the seaborne zinc trade suggests that the metal’s prices may face headwinds in the near term as the global market becomes better supplied. In addition, the robust cargo order volumes align with the narrative of a glut in the new year.
Data Source: Shipfix