Contrary to many opinions voiced over the weekend, crude oil continued to retreat during yesterday’s trading session. Red also dominated the commodity trading screens, with iron ore among Tuesday’s losers. On the other hand, the BDI and its sub-indices advanced yesterday, with the headline freight indicator rising by nearly three per cent.
By Ulf Bergman
Macro/Geopolitics
The Chinese economy had a better start to the year than widely expected, with exports and manufacturing contributing to stronger-than-expected growth during the first quarter. According to data released by the country’s statistics authority yesterday, the world’s second-largest economy expanded by 5.3 per cent during the year’s first three months compared to the same period last year. Markets had anticipated a somewhat more modest growth of 5.0 per cent. The Chinese authority suggested that the robust start for the year put in place a solid foundation for the year but warned that external influences could derail the march towards the year’s official growth target of around five per cent.
Separately, the International Monetary Fund upgraded its projection for the US growth amid continued strength for the world’s largest economy. The IMF now expects that the US economy will expand by 2.7 per cent this year, more than last year’s 2.5 per cent growth. The development contributed to continued strength for the US currency, with the dollar index at the highest level since the beginning of November last year as traders saw interest rate cuts moving further into the future.
Commodity Markets
In contrast to expectations in many quarters over the weekend, crude oil prices have seen only limited moves on the downside so far this week. Yesterday, the June Brent futures ended the session at 90.04 dollars per barrel, following a marginal retreat. Still, crude oil markets are likely to see more significant price moves if and when Israel responds to the Iranian attack. In today’s trading, the contracts have continued to decline with losses of around one per cent.
Rising geopolitical tensions and supply disruptions supported further price gains for European natural gas on Tuesday. The front-month TTF futures surged by 6.4 per cent and ended the day at 33.14 euros per MWh, the highest closing price since early January. In today’s session, the contracts have given up some of the recent gains and are trading around four per cent below yesterday’s close.
The benchmark futures for the Asian and European coal markets moved in opposite directions during Tuesday’s trading session. The front-month futures for delivery in the port of Newcastle shed 0.4 per cent, ending the day at 136 dollars per tonne. The contracts for delivery in Rotterdam next month advanced by 1.6 per cent, settling at 119.90 dollars per tonne, as higher natural gas prices fuelled demand.
After three consecutive sessions of gains, iron ore retreated into the red during yesterday’s session amid profit-taking and robust supplies. The May futures listed on the SGX ended the session at 109.39 dollars per tonne, following a 2.5 per cent decline for the day. However, the contracts have rebounded in today’s trading with gains of nearly six per cent.
The strength of the US dollar contributed to losses for most base metals yesterday, offsetting concerns over global supplies. The three-month copper futures trading on the LME ended the day with a 1.1 per cent loss, while the zinc and nickel contracts shed 0.1 and 0.7 per cent, respectively. On the other hand, the aluminium futures recorded a modest gain of 0.3 per cent as concerns over supplies lingered.
The grain and oilseed futures listed on the CBOT declined for a second day on Tuesday as solid global supplies weighed on prices. The May soybean futures dropped 1.1 per cent, while the wheat and corn contracts shed 0.4 and 0.1 per cent, respectively.
Freight and Bunker Markets
The Baltic Dry Index advanced for a fifth consecutive session yesterday, with all segments in the black. The headline index rose by 2.8 per cent, with the capesizes contributing with a large part of the upward momentum. The sub-index for the largest vessels increased by 4.0 amid rising cargo order volumes in the Atlantic and downward pressure on tonnage supply. The gauge for the supramaxes gained 2.4 per cent amid a shift in demand towards more imminent deliveries. The indicators for the panamaxes and handysizes recorded daily gains of 1.0 and 0.4 per cent, respectively.
The Baltic Exchange’s wet freight indices had a more mixed day than their dry counterparts. The gauge for the clean tankers delivered the session's most significant move, with a gain of 9.1 per cent. In contrast, the dirty tanker indicator fell by 1.8 per cent. The indices for the LPG and LNG carriers recorded more modest changes. The former shed 0.4 per cent, while the latter edged up by a quarter of a per cent.
While crude oil prices remained more or less stationary yesterday, the trading in bunker fuels delivered a mixed session across the world’s leading maritime hubs. The VLSFO rose by nearly 0.9 per cent in Singapore and Rotterdam while shedding 1.5 per cent in Houston. The MGO retreated by 4.3 per cent in Houston and by half a per cent in Singapore. In Rotterdam, the latter fuel recorded a modest gain of 0.6 per cent.
The View from the Shipfix Desk
At the end of last week, Indian authorities instructed the country’s power plants using imported coal to remain in operation until the middle October. In addition, they asked operators having under-utilised gas fuelled plants to increase their output duing the coming months. The move came as the world’s most populous country recorded an eight per cent increase in electricity demand during the financial year that ended last month. Demand is also expected to rise in the coming months as rising temperatures will fuel increasing electricity consumption. Hence, in order to avoid extensive blackouts, the Indian government wants to see greater production. The development can be expected to fuel greater imports of coal and other energy commodities.
While tradeflow data suggested that Indian coal imports rose during March compared to January and February, Shipfix’s forward-looking cargo order data indicate that last month’s month-on-month increase may extend into the current month. However, softer demand for seaborne transportation of coal for discharge in Indian ports during the past month point towards weaker import volumes in May.
Weekly cargo order volumes for coal discharging in India have been volatile over the past few weeks, with the past week showing considerable weakness. However, the current week has shown some early promise, and should the remainder of it proceed along a similar path, the aggregate could approach what was recorded during the month’s first week. Also, should the country’s utilities heed the government’s request, it is likely that demand will accelerated in the coming weeks. Such a development would primarily benefit the supramaxes and the panamaxes, which are typically the vessels of choice in the Indian coal trade.
Data Source: Shipfix