The Baltic Dry Index declined for the first time in more than two weeks yesterday as the capesizes encountered headwinds amid softer demand in the Atlantic. Among the commodities, coal and natural gas were among the minority advancing as demand remained robust.
By Ulf Bergman
Macro/Geopolitics
In line with expectations, the Chinese leadership announced yesterday that it aims for around five per cent economic growth during the current year. The goal was in line with last year's and did not come as a surprise. However, the target may prove more ambitious than a year ago as base effects in the wake of extensive Covid disruptions contributed to last year’s growth. As a result, more initiatives to support the Chinese economy and domestic demand will most likely be required. Such a development should prove beneficial for the demand for commodities and seaborne transportation, but given the challenges facing the Chinese economy, some caution may be appropriate.
Commodity Markets
After gaining ground last week, crude oil retreated for a second day on Tuesday. Weaker demand offset concerns over supplies, and the May Brent futures ended the day at 82.04 dollars per barrel, following a decline of 0.9 per cent. However, the contracts have staged a minor recovery in today’s session amid gains of nearly one per cent.
Continued concerns over supply disruptions in the wake of an outage at a major US LNG export terminal contributed to further gains for European natural gas prices yesterday. The front-month TTF futures recorded a daily increase of 2.2 per cent, settling at 27.47 euros per MWh. The contracts have seen further gains during today’s session and are trading more than two per cent above yesterday’s close.
Higher demand and rising natural gas prices fuelled gains for the main coal futures for the Asian and European markets yesterday. The contracts for delivery in the port of Newcastle next month rose by 0.9 per cent, settling at 141.35 dollars per tonne. The April Rotterdam futures ended the day at 112.65 dollars per tonne, following a daily gain of 1.9 per cent. The closing price for the European futures was the highest since early November.
Following a substantial drop during the second half of February, iron ore prices have stabilised. For the best part of the past two weeks, the front-month futures listed on the SGX have alternated between limited daily gains and losses. Yesterday, the contacts shed 1.0 per cent, giving up half of Monday’s gains, and ended the session at 114.44 dollars per tonne. Fortunes have continued to shift in today’s trading, with the contracts trading nearly one per cent above yesterday’s closing price.
Most base metals also came under limited pressure on Tuesday as traders focused on the demand outlook. The three-month copper futures listed on the LME retreated by 0.6 per cent, while the aluminium and nickel contracts shed 0.2 and 1.0 per cent, respectively. On the other hand, the zinc futures went against the flow and recorded a daily gain of a quarter of a per cent.
Abundant global supplies and some question marks over the demand outlook weighed on the grain and oilseed futures during yesterday’s trading session. The May wheat futures listed on the CBOT fell by 2.3 per cent, while the corn and soybean contracts shed 0.9 and 0.5 per cent, respectively.
Freight and Bunker Markets
After five consecutive sessions with all of the Baltic Exchange’s dry bulk indices in the black, yesterday’s results proved to be more mixed. The Baltic Dry Index ended a streak of twelve days of gains, with the capesizes delivering the negative momentum. The headline index shed 0.3 per cent but remained nearly 90 per cent above the level recorded a year ago. The sub-index for the capesizes declined by 1.4 per cent as cargo order volumes in the Atlantic came under some pressure. The gauge for the panamaxes rose by 1.8 per cent amid robust demand across all major basins. The freight indicators for the supramaxes and the handysizes advanced by 1.2 and 1.6 per cent, respectively, with demand in the Atlantic contributing to the segments’ continued gains.
The Baltic Exchange’s indicators for wet freight rates had a session of mixed fortunes on Tuesday. The index for the dirty tankers advanced by 3.9 per cent, recovering some of the losses incurred over the past two weeks. However, the gauge for the clean tankers remained in the red for a seventh consecutive session amid a loss of 1.8 per cent. The indices for the LNG and LPG carriers went in opposite directions yesterday, with the former shedding 3.1 per cent and the latter gaining 3.2 per cent.
Lower crude oil prices contributed to some limited headwinds for the bunker fuels yesterday. While the VLSFO remained broadly unchanged in Singapore and Houston, the fuel retreated by 0.4 per cent in Rotterdam. For the MGO, the daily changes were somewhat more pronounced. In Singapore and Houston, the daily loss approached two per cent, while the fuel shed nearly one per cent in Rotterdam.
The View from the Shipfix Desk
Over the past month, the capesize market has been described extensively using various superlatives, as it has been performing far better than traditional seasonal patterns for the time of year would suggest. Despite a minor retreat yesterday, the Baltic Exchange’s capesize index remained nearly twice as high as a month ago. However, a year-on-year comparison is even more impressive, with the gauge almost 250 per cent above the reading twelve months ago.
Higher cargo order volumes during January and February provide some explanation for the exceptional markets. Last month, demand rose by around five per cent compared to the same month the previous year. Still, this paled compared to developments during January, when global demand surged by a third year-on-year. While the market evolution may seem counter-intuitive on the basis of weaker aggregate demand in February, global market lead times for the capesizes trended upwards during the first three weeks of the year. This trend indicated that demand was geared towards later delivery. However, since then, the nature of the market has shifted towards more imminent requirements. As a result, freight rates have continued to gain ground.
While cargo order volumes surged last week amid strong demand in the Atlantic, the current week has come off to a relatively slow start, contributing to yesterday’s decline for the capesize index. Additionally, last week’s recovery in the number of available vessels in the Atlantic provided some additional resistance for the freight rates. However, based on early developments this week, the improvements in the supply situation may prove transitory.
Beyond order volumes and vessel supply, disruptions to global supply chains, rising geopolitical tensions, and some shifting trade patterns have supported freight rates. Hence, the capesizes should continue to enjoy good, albeit volatile, markets.
Data Source: Shipfix