The capesizes and the panamaxes put further pressure on the Baltic Dry Index yesterday, which declined by nearly five per cent. Iron ore and nickel were among the session’s winners, with the former benefitting from the news that China’s top officials supported further fiscal deficits in order to stimulate domestic demand.
By Ulf Bergman
Macro/Geopolitics
Following yesterday’s conclusion of the Central Economic Work Conference in Beijing, China’s top officials, led by President Xi, vowed to raise the fiscal deficit target for next year. For only the second time in more than ten years, the body made “lifting consumption vigorously” and stimulating domestic demand the number one priority. The development came as the leaders of the world’s second-largest economy braced for a potential trade war with the US as the incoming presidential administration appeared to remain committed to extensive tariffs. Hence, with exports under threat, domestic demand will become increasingly important for growth. Still, details for any fiscal or monetary support during the coming year remain scarce. As a result, traders and investors will likely remain cautious regarding the impact on growth and demand.
Commodity Markets
After gaining nearly two per cent on Wednesday, crude oil prices stabilised yesterday as hopes of higher Chinese demand were offset by a well-supplied market. The February Brent futures settled at 73.41 dollars per barrel, marginally lower than on Wednesday. The contracts have moved higher in today’s trading amid gains of around half a per cent, putting them on course for a weekly gain after two weeks in the red.
European natural gas prices fell sharply yesterday as forecasts indicated above-average temperatures across north-west Europe over the next ten days. The front-month TTF futures declined by 4.2 per cent and settled at 42.80 euros per MWh, the lowest closing price in just over a month. The contracts initially saw a minor rebound in today’s session but have since retreated into the red amid losses of around half a per cent.
The benchmark futures for the European and Asian coal markets had a second session of diverging fortunes on Thursday. The January contracts for delivery in Rotterdam fell by 1.8 per cent, settling at 109.70 dollars per tonne, as lower natural gas prices weighed on demand. On the other hand, the Newcastle futures for delivery next month rose by 0.4 per cent, ending the day at 133 dollars per tonne.
The news that the Chinese government is looking to raise the fiscal deficit target supported iron ore prices yesterday as traders hoped it would be positive for demand. The January futures listed on the SGX recorded a daily gain of 1.4 per cent, ending the session at 106.06 dollars per tonne. However, the contracts have faced headwinds today, as the lack of details for future stimulus eroded optimism, and are trading more than per cent below yesterday’s close.
Continued gains for the US dollar contributed to losses for most base metals yesterday. The three-month copper futures listed on the LME shed 1.1 per cent, while the aluminium contracts retreated marginally, and the zinc futures dropped by 1.6 per cent. On the other hand, the nickel contracts rose by 2.0 per cent, supported by supply concerns amid news that the Indonesian government may impose output quotas.
Yesterday, the March wheat and corn futures listed on the CBOT fell by 0.8 and 1.1 per cent, respectively. An improving supply outlook amid good harvest progress in Argentina and Australia weighed down the former, while disappointing US export data put pressure on the latter. The January soybean futures remained broadly unchanged for the day.
Freight and Bunker Markets
The Baltic Dry Index continued to decline yesterday, extending losses into a third consecutive session as the capesizes and the panamaxes faced significant headwinds. The headline gauge shed 4.6 per cent, which brought it to the lowest level since July last year.
The index for the capesizes dropped by 9.1 per cent amid soft demand, putting it nearly 73 per cent below the level recorded a year ago. The gauge for the panamaxes fell by 3.0 per cent amid low cargo order volumes in the Atlantic. The gauges for the supramaxes and the handysizes continued to record limited daily losses, with the former retreating by 0.1 per cent and the latter by 0.3 per cent.
The Baltic Exchange’s wet freight indices had another mixed session on Thursday. The gauges for the dirty and the clean tankers declined by 0.2 and 3.8 per cent, respectively. The index for the LPG carriers rose by 1.1 per cent, while the LNG freight gauge remained unchanged.
The trading in VLSFO and MGO fuels saw gains across all the major bunkering for a second consecutive session on Thursday, supported by earlier gains for crude oil. In Singapore, the VLSFO rose by 1.8 per cent, while the MGO gained 1.6 per cent. The two fuels rose by around three-quarters of a per cent in Houston and Rotterdam.
The View from the Shipfix Desk
As discussed in Wednesday’s edition of “The Fix”, Chinese steel exports look set to come under pressure as cargo order volumes for the trade have faced significant downward pressure in recent weeks. This development has been partly fuelled by a seasonal rebound in Chinese domestic demand earlier in the autumn. As a result, the January steel rebar futures listed on the Shanghai Futures Exchange are currently trading around ten per cent above the levels recorded in early September, despite losing some ground in October.
The decline in demand for seaborne transportation of steel from China has contributed to global cargo order volumes trending lower since the middle of September. Still, China is not the only culprit for the weaker demand, with Vietnam and Brazil contributing to the weakness over the past month.
Compared to a year ago, the global aggregate cargo order volumes recorded in November were around a third lower. While the past week showed a rebound in demand, the positive momentum appears to have run out of steam, and the current week is on course for another soft reading. Hence, the aggregate demand for December may struggle to match November’s, as further weakness can be expected with Christmas and New Year rapidly approaching. The development could offset some of the bullish sentiments for iron ore that the announcement of additional stimulus for the Chinese economy provides.
Data Source: Shipfix