Weaker demand across the dry bulk segments contributed to the Baltic Dry Index falling by more than four per cent on Tuesday. In contrast, many commodities advanced, supported by a weaker dollar and supply concerns amid rising geopolitical tensions.
By Ulf Bergman
Macro/Geopolitics
Yesterday, the International Monetary Fund revised its outlook for global growth this year upwards. Amid a more positive view of the US economy and the extensive support that Beijing provides to the Chinese economy, the IMF expects that the global economy will expand by 3.1 per cent in 2024. In October last year, the Washington-based organisation put the forecast at 2.9 per cent. However, the projection for next year was kept unchanged at 3.2 per cent. Still, the fund highlighted several risks that could derail the global economy over the coming year. Rising geopolitical tensions and a rebound in inflation could weigh on growth. Higher commodity prices amid disruptions to the global supply chains, such as the current situation in the Red Sea, were among the specific factors that were identified as potential negatives for the world economy.
Commodity Markets
After beginning the new week in the red, crude oil prices bounced back during yesterday’s session. Renewed concerns that the mounting tensions in the Middle East would affect supplies contributed to the April Brent futures rising by 0.8 per cent during yesterday’s trading, ending the session at 82.50 dollars per barrel. However, the Brent futures have reversed course in today’s trading, with the April contracts trading around half a per cent below yesterday’s close.
European natural gas prices closed at the highest level in two weeks as traders grew increasingly concerned over the steady supply of LNG from the Middle East as tensions rose in and around the Red Sea. The March TTF futures rose by 4.7 per cent and settled at 29.58 euros power MWh. In today’s trading, the contracts have continued to gain ground but at a considerably more modest pace.
Like the other energy commodities, coal also gained ground yesterday. Higher demand amid rising natural gas prices contributed to the futures for the European and Asian markets advancing yesterday. The contracts for delivery in Rotterdam in March rose by 2.1 per cent, ending the day at 93.65 dollars per tonne. The Newcastle contracts recorded even more significant gains as they settled at 120.50 dollars per tonne, following a 4.3 per cent surge.
Iron ore continued to swing between daily gains and losses on Tuesday. After beginning the week on a positive note, the March futures listed on the SGX retreated by 1.9 per cent yesterday, settling at 132.84 dollars per tonne. The loss stemmed from some pessimism over the demand outlook. In breach of the recent narrative, the contracts have continued to decline in today’s session and are trading more than two per cent below yesterday’s close.
A retreat for the US dollar during yesterday’s trading session contributed to modest gains for the base metals. The three-month futures for copper, aluminium, zinc and nickel listed on the LME recorded daily gains of around half a per cent.
Following a few sessions of losses, the grain and oilseed futures listed on the CBOT staged a recovery yesterday, with a weaker dollar contributing to the gains. The March wheat and soybean futures advanced by just over two per cent, while the corn contracts gained 1.7 per cent.
Freight and Bunker Markets
Tuesday saw all of the Baltic Exchange’s dry bulk indices in the red. The headline Baltic Dry Index retreated by 4.3 per cent, with much of the downward momentum originating from the capesizes. The sub-index for the largest vessels dropped by 7.4 per cent as demand in the Atlantic basin remained weak, and the global number of available vessels increased. The gauge for the panamaxes shed 3.0 per cent as cargo order volumes in the Pacific faced headwinds. For the supramaxes and the handysizes, yesterday’s losses were more limited. Their freight rate indicators retreated by around a third of a per cent amid softer demand.
Most of the Baltic Exchange’s wet freight indices were also in the red yesterday. The indicator for the dirty tankers declined by 2.0 per cent as concerns over global crude oil demand grew. The clean tankers saw their gauge record a daily drop of 3.4 per cent. However, the index for the LPG carriers recorded the session's most significant drop, as it fell by 10.7 per cent. The gauge for the tankers carrying LNG went against the flow and recorded a modest 0.4 per cent gain for the day.
Rising demand amid an increasing number of vessels making the longer voyage around Africa, rather than using the Suez Canal and higher crude oil prices contributed to continued gains for the VLSFO bunker fuel yesterday. While a 0.8 per cent gain in Singapore was modest compared to recent days, it nevertheless contributed to an advance of nearly eight per cent for the past week. The fuel advanced by 1.4 per cent in Rotterdam while recording only a marginal gain in Houston. The MGO recorded limited price moves after a few days of significant increases. The latter fuel gained 0.4 per cent in Rotterdam while shedding around a third of a per cent in Singapore and Houston. Still, despite yesterday’s limited activities, MGO is trading around five per cent above the levels seen a week ago.
The View from the Shipfix Desk
According to data released yesterday, the Euro Area avoided a recession during last year’s final quarter by the smallest of margins. The zone’s economy expanded by 0.1 per cent during the three months compared to the same period in 2022. The reading was also marginally better than market expectations of continued stagnation. At the same time as the currency bloc survived its close encounter with recession, for now at least, data for two of its largest economies, Germany and France, showed that inflation rates continue to decline, raising the prospects for lower interest rates later in the year.
Demand for seaborne transportation of steel bound for European ports for the past month looks set to be marginally lower than during the same month last year. However, cargo order volumes during December were substantially higher than a year earlier. The aggregate for the past two months was around 25 per cent higher than a year earlier. Hence, the forward-looking qualities of the cargo order data suggest that the European economy may show some life in the coming months amid the greater demand for steel.
Beyond the continued importance of the intra-Euorpean trade, an increase in demand for Indian steel has contributed to the month-on-month growth of cargo order volumes. The rise will primarily benefit the smaller vessels as average cargo sizes remain around 20,000 tonnes. There is also the possibility that tonne-mile demand will increase more than under normal circumstances as shipments may need to take the longer route around the Cape of Good Hope.
Data Source: Shipfix