The Baltic Dry Index remained broadly unchanged yesterday as the capesizes and panamaxes moved in opposite directions and offset each other. Among the commodities, energy prices moved higher, while an improving supply outlook weighed on grains and oilseeds.
By Ulf Bergman
Macro/Geopolitics
While holidays in China are keeping reporting from the world’s second-largest economy at a minimum, the US saw a slew of mixed economic data yesterday. Retail sales in the world’s largest economy declined by 0.8 per cent in January compared to the month before. The drop was the largest in nearly year and well beyond the consensus projection of a decline of 0.1 per cent. On the other hand, two regional manufacturing indicators for the Northeast were better than expected and indicated an improving outlook despite a drop in industrial production last month. In addition, the US labour market continued to defy elevated interest rates and lower retail spending, with fewer-than-expected applications for unemployment benefits at the beginning of the month.
Commodity Markets
Yesterday, crude oil recovered the losses incurred on Wednesday as a weaker dollar supported prices. The April Brent futures rose by 1.4 per cent, ending the day at 82.86 dollars per barrel. However, in line with recent volatility, the contracts have reversed course in today’s trading, with losses of around half a per cent.
After six straight sessions in the red, European natural gas prices edged up yesterday. The front-month TTF futures rose by 0.4 per cent, settling at 24.97 euros per MWh, amid an unplanned outage at a Norwegian gas processing plant. After initial gains, the contracts have come under renewed pressure in today’s trading with losses of around one per cent.
Continued robust Chinese demand amid cold weather in parts of the country and higher European natural gas prices contributed to rising coal prices on Thursday. The futures for delivery in the port of Newcastle next month recorded a daily gain of 0.3 per cent, ending the session at 123.75 dollars per tonne. The Rotterdam contracts ended the day at 92.15 dollars per tonne amid a 2.5 per cent gain for the day.
Iron ore continued to record limited daily gains on Thursday in a market marked by limited liquidity amid Chinese holidays. The front-month futures listed on the SGX advanced by 0.4 per cent to 129.45 dollars per tonne. The contracts have also seen accelerating gains of around 1.5 per cent in today's trading as markets gear up for the return of the Chinese buyers next week.
Despite a sizeable retreat for the US dollar, the base metals had a mixed session on Thursday. The copper and zinc three-month futures listed on the LME advanced by 1.4 and 1.8 per cent, respectively. In contrast, the aluminium and nickel contracts gave up Wednesday’s gains amid daily losses of 0.5 per cent.
During Thursday's trading, an upgraded supply outlook weighed on the grain and oilseed futures listed on the CBOT. The March wheat futures dropped by 3.2 per cent, while the corn contracts shed 1.5 per cent. The soybean futures declined by 0.7 per cent to the lowest level since May last year as oversupply concerns loomed.
Freight and Bunker Markets
The Baltic Dry Index edged down by the smallest of margins yesterday, i.e. one index point or less than 0.1 per cent, as developments for the capesize and panamax indices offset each other. The gauge for the largest vessels retreated by 1.7 per cent amid continued weak demand in the Pacific and Indian Oceans. In contrast, the indicator for the panamaxes rose by 2.6 per cent amid robust demand in the Pacific basin. The gauges for supramaxes and handysizes recorded modest gains yesterday, with the former advancing by 0.6 per cent and the latter by 0.2 per cent.
The wet freight indices also had a mixed session on Thursday. The Baltic Exchange’s dirty tanker index extended gains into a sixth consecutive session amid an advance of 2.5 per cent as demand remained robust. In contrast, the gauge for the clean tankers retreated by 0.6 per cent. The spot index for the LPG carriers continued to recover recent losses with a gain of 7.0 per cent, while the gauge for the LNG tankers remained unchanged for a second day.
The trading in VLSFO remained mixed yesterday, while the MGO extended on Wednesday’s losses. The former fuel advanced by 0.2 per cent in Houston, while Singapore and Rotterdam recorded losses of around 1.5 per cent. On the other hand, Houston led the way lower in the MGO trade, with a daily loss of 3.4 per cent. Still, losses in Singapore and Rotterdam were also significant at 1.9 and 1.2 per cent, respectively.
The View from the Shipfix Desk
The past two weeks have seen some tentative signs of a rebound in demand for panamaxes loading agricultural commodities on the east coast of South America. Last week saw aggregate cargo order volumes of around 2.4 million tonnes. While the current week is unlikely to top that reading, it looks set to approach two million tonnes. Most of the volumes are for shipments to the Far East and Southeast Asia, contributing to a healthy boost in tonne-mile demand for the segment and an improving outlook for freight rates.
In addition to improving cargo order volumes, a recent drop in the trade’s market lead times should provide additional support for freight rates. After a period of extended lead times, the past week has seen a significant drop, highlighting an increasing appetite for more rapid delivery. The average time between the first date of circulation of orders and the first loading date has also dropped below the average for the past year, suggesting that the trade will provide support for panamax freight rates in the near term.
Data Source: Shipfix