The capesizes continued to weigh on the Baltic Dry Index during yesterday’s session amid headwinds for cargo order volumes across the major basins. In contrast, the mid and small-sized dry bulk segments recorded only limited index moves on Tuesday. Crude oil and metals were among yesterday’s better-performing commodities, with concerns over supplies affecting the former and an improving demand outlook supporting the latter. In contrast, coal remained under pressure amid headwinds for demand.
By Ulf Bergman
Macro/Geopolitics
US labour market data released yesterday showed continued resilience for the world’s largest economy. According to the US Bureau of Labor Statistics, the number of job openings rose to 7.7 million in October, significantly more than the 7.5 million consensus projection. In addition, the number of voluntary job quits increased to the highest level since May, suggesting that US workers remain confident regarding the employment outlook.
Across the Pacific, Caixin’s PMI for the Chinese services sector supported the suggestion of headwinds for domestic demand. While its reading of 51.5 was better than the official gauge’s 50.0, it was nevertheless lower than expectations and the previous month. Hence, the softer-than-expected reading for the Caixin added further fuel to the assumption that recent upticks for the manufacturing PMIs may prove shortlived amid front-loading of orders ahead of a new US administration and potential tariffs.
Commodity Markets
After a week of headwinds, crude oil prices recovered some of the recent losses yesterday. The gains were fuelled by mounting suggestions that OPEC+ will further delay previously announced output hikes and new US sanctions on Iranian crude oil. The February Brent futures recorded a daily gain of 2.5 per cent, ending the day at 73.62 dollars per barrel. The contracts have continued to advance during today’s session, trading approximately a quarter of a per cent higher than yesterday’s close.
European natural gas prices retreated marginally yesterday amid expectations that milder and windier weather will weigh on demand. The front-month TTF futures shed 0.2 per cent, settling at 48.56 euros per MWh. The decline has accelerated during today’s session amid losses of around two per cent.
The benchmark futures for the Asian and European coal market continued to lose ground yesterday, extending the retreat into an eighth consecutive session, as soft demand for seaborne imports fuelled the negative momentum. The January futures for delivery in Newcastle recorded a daily decline of 0.6 and settled at 135.15 dollars per tonne, the lowest closing price since the end of February. The Rotterdam contracts ended the day at 115.70, a two-month low, following a daily loss of 1.7 per cent.
Iron ore prices continued to recover yesterday, supported by an improved demand outlook amid higher Chinese steel production. The January SGX futures climbed 0.5 per cent and ended the day at 105.11 dollars per tonne, nearly nine per cent higher than in mid-November. The contracts initially recorded further gains in today’s session but have since retreated to the vicinity of yesterday’s close.
After losses across the board on Monday, the base metals gained yesterday, fuelled by hopes of improving demand. The three-month copper futures listed on the LME rose by 1.3 per cent, while the aluminium and zinc contracts gained 0.8 and 0.6 per cent, respectively. The nickel futures were yesterday’s best performers amid a 2,1 per cent advance.
The March wheat and corn futures listed on the CBOT remained broadly unchanged yesterday. On the other hand, the January soybean contracts rose by two-thirds of a per cent, supported by robust Chinese demand.
Freight and Bunker Markets
Stiff headwinds for the capesizes kept the Baltic Dry Index in the red for a fifth consecutive session on Tuesday. The headline index fell by 4.7 per cent, bringing it to the lowest level in nearly fifteen months. The gauge for the largest segment dropped by 9.2 per cent and settled at the lowest since late October amid low cargo order volumes across all major basins. The indices for the mid and small-sized vessels had an uneventful session yesterday, with only limited moves. The gauges for the panamaxes and the handysizes shed around half a per cent, while the supramax indicator remained unchanged.
The Baltic Exchange’s dirty tanker index recorded a marginal decline of 0.2 per cent yesterday, a third in a row. On the other hand, the gauge for their clean siblings recorded a fourth consecutive session with significant losses amid a 5.3 per cent decline. The spot indicator for the LNG carriers rose by 4.8 per cent, while the LPG freight index retreated by 2.9 per cent.
Despite significantly higher crude oil prices, the trading in bunker fuel only delivered limited price moves yesterday. In Singapore, the VLSFO rose by 0.4 per cent, while the MGO retreated by 0.8 per cent. The former fuel shed 0.8 per cent in Rotterdam, while the latter declined by 0.5 per cent in the Dutch port. On the other hand, the two fuels ended the session broadly unchanged in Houston.
The View from the Shipfix Desk
After reaching a ten-month high in late September, sugar prices have been trending lower over the past two months, albeit in volatile conditions. The March #11 sugar futures listed on the ICE ended yesterday’s session nearly nine per cent below the recent high. Still, despite the decline over the past two months, the contracts are trading around twenty per cent above the low for the year, which was recorded in August. Also, in a historical context, prices remain elevated.
The recent slide in sugar prices has been partly fuelled by a weakening of the Brazilian real against the US dollar. In addition, many futures traders closed long positions for the sweetener, which also weighed on prices. Improving growing conditions have also contributed to the headwinds, with the International Sugar Organization recently reducing its forecast deficit for next year. Still, Indian production and exports remain under pressure, contributing to prices being elevated compared to past years.
Global weekly cargo order volumes for sugar have recovered over the past five weeks, following weakness throughout much of September and October. The current week also looks set to extend the positive development. While Indian exports remain elusive, demand for seaborne transportation of sugar from Brazilian ports has been recovering. In addition, cargo orders for exports from countries such as Australia and Guatemala have contributed to the recent solid weekly readings.
Still, despite the recent rebound in demand, cargo order volumes for the past month were nearly 28 per cent lower than a year ago. While the closing of long futures positions and an improved proved production outlook may provide some bearish signals for sugar prices, the cargo order data suggest that global supplies will remain tight. Hence, prices are increasingly likely to recover some of the recent losses in the near future.
Data Source: Shipfix