The Baltic Dry Index surged by nearly sixteen per cent last week on the back of a solid performance for the capesizes. Among the commodities, iron ore was one of the past week’s worst performers as Chinese housing data weighed on the demand outlook.
By Ulf Bergman
Macro/Geopolitics
Friday saw the release of yet more gloomy data for the beleaguered Chinese property sector. The country’s new home prices fell by 0.7 per cent year-on-year in January, an acceleration of the decline from the 0.4 per cent reported for December. The reading was also the seventh consecutive month of falling property prices and the fastest drop since March last year. The disappointing reading highlighted the continued travails of China’s real estate developers amid weak demand. The soft market is also likely to darken the Chinese demand outlook for iron ore.
The week ahead will see the release of Chinese and US PMI data on Friday, which will provide new insights into the state of the world’s two largest economies.
Commodity Markets
After two weeks of gains, crude oil prices declined over the past five trading sessions as traders grew increasingly concerned over the demand outlook, offsetting supply-side issues. The April Brent futures fell by 2.2 per cent over the past week, ending Friday's session at 81.62 dollars per barrel. The contracts have remained under some pressure in today’s trading amid losses of around half a per cent.
European natural gas prices declined for a third consecutive week as demand remained under pressure amid mild weather across the continent and a well-supplied market. The April TTF futures recorded a weekly decline of 7.7 per cent, ending the week at 23.07 euros per MWh. The new week has seen a reversal of fortunes, with the contracts trading around three per cent above Friday’s close.
In contrast to oil and natural gas, coal ended the past week in the black as Chinese demand recovered following the Lunar New Year holidays. The Newcastle futures for delivery in April rose by 1.6 per cent over the past five trading sessions, settling at 124.75 dollars per tonne on Friday. The contracts for delivery in Rotterdam ended the week at 90.30 dollars per tonne, following a weekly gain of 2.4 per cent.
Iron ore delivered last week’s weakest performance among the major commodities. Data showing a substantial drop in new home sales highlighted that the Chinese property sector remains under pressure, contributing to a more sombre demand outlook for the steelmaking ingredient. The April futures listed on the SGX shed 9.5 per cent last week, settling at 118.85 dollars per tonne on Friday. The new week has seen the contracts facing continued headwinds amid losses of around four per cent.
Concerns over potential supply disruptions contributed to gains for most base metals during the middle of last week. However, easing fears contributed to some losses during the final stages of the week. The three-month aluminium futures listed on the LME recorded a weekly loss of 1.7 per cent. On the other hand, the copper and zinc futures advanced by nearly one per cent last week. Nickel delivered the week’s stellar performance as it ended the week seven per cent above the previous week’s closing price.
Uncertainty ahead of the spring growing season in the US contributed to a rebound for wheat last week. After a few weeks in the red, the May wheat futures listed on the CBOT recorded a weekly gain of 1.8 per cent. In contrast, the soybean and corn May futures continued to decline amid an improving supply situation. The former shed 2.9 per cent over the past five sessions, while the latter retreated by 3.7 per cent.
Freight and Bunker Markets
The Baltic Dry Index delivered a gain of 15.9 per cent last week, with all segments apart from the panamaxes ending the week in the black. Still, the capesizes provided much of the upward momentum for the headline index. The freight rate indicator for the largest vessels surged by 28.5 per cent amid limited tonnage supply and increasing cargo ordering activities in the Indian Ocean. The gauge for the supramaxes benefitted from a minor rebound in demand and continued low vessel availability, ending the week with an 11.0 per cent increase. The sub-index for the handysizes recorded a weekly gain of 9.8 per cent as demand in the Pacific basin picked up. In contrast, the indicator for the panamaxes shed 3.1 per cent over the course of the past week amid soft demand across all basins and increasing vessel supply.
Among the Baltic Exchange’s wet freight indices, only the gauge for the LPG carriers avoided the red last week. The indicator for the dirty tankers dropped by 9.8 per cent over the week amid mounting concerns over the crude oil demand outlook. The index for the clean tankers recorded a weekly decline of 5.9 per cent, while the gauge for the LNG tankers shed 2.1 per cent. The spot index for the vessels carrying LPG continued to recover from January’s extensive losses amid a weekly gain of 38.2 per cent.
Lower crude oil prices contributed to mostly lower bunker fuel prices last week. In Singapore, the VLSFO and the MGO recorded weekly losses of around 1.5 per cent. The two fuels declined by 0.3 and 3.8 per cent, respectively, in Houston. On the other hand, the trading in Rotterdam experienced more mixed fortunes, with the VLSFO recording a weekly gain of 0.6 per cent and the MGO retreating by 1.7 per cent.
The View from the Shipfix Desk
Copper prices have had a volatile start to the year. While the three-month futures listed on the LME currently are trading broadly in line with the levels seen at the end of last year, the past two months have seen the contracts going through two cycles of decline and recovery. Over the past fortnight, the contracts for the red metal have gained around five per cent after losing considerable ground during the first week of February. An extended period of soft Chinese economic data, which has fuelled speculations of more stimulus programmes, and the recent Chinese New Year holidays have contributed to the changeable market conditions over the past two months.
Weekly global cargo order volumes for copper have also been volatile since the beginning of the year. A strong recovery in demand for seaborne transportation of copper during the first few weeks of the year preceded higher copper prices during the second half of January. A decline in order volumes in the run-up to the Chinese New Year subsequently weighed on prices. However, non-Chinese demand has since contributed to a rebound. Still, last week’s weak cargo order volumes indicate that the recent recovery could lose momentum, with copper prices declining yet again. On the other hand, a seasonal recovery for Chinese demand in the coming weeks would support prices at current levels.
Data Source: Shipfix