The Baltic Dry Index declined for a fourth consecutive session on Tuesday, with all segments contributing to the headwinds amid generally softer demand. For the commodities, red dominated yesterday’s trading screens. Iron ore was one of the session losers, with a decline of nearly two per cent.
By Ulf Bergman
Macro/Geopolitics
The US raised the stakes for global trade yesterday by imposing more tariffs on Chinese imports to counter what the Biden administration sees as unfair competition. In addition to expected measures targeting steel and aluminium, the US put significant tariffs on electric vehicles and semiconductors, to name a few product categories. While US imports of dry bulk cargo from China remain fairly limited compared to what arrives in the country’s ports inside containers, any Chinese response to the measures could affect the more sizeable US dry bulk exports to China. Additionally, a continued tit-for-tat increase in trade barriers could further harm global trade and cause other countries to follow suit.
Commodity Markets
Crude oil continued its swing between limited daily gains and losses yesterday. Reports that the members of OPEC+ pumped more oil than their allotted quotas last month weighed on prices. The July Brent futures ended Tuesday’s session at 82.38 dollars per barrel, following a 1.2 per cent decline for the day. Today’s trading initially saw a reversal of fortunes, with the contracts gaining more than half a per cent as wildfires in Canada threaten to disrupt the country’s oil sands industry. However, since then, the gains have been given up, and the contracts are trading nearly a per cent below yesterday’s close.
After two days of substantial losses, European natural gas prices edged up yesterday as renewed concerns over supplies offset lower demand. Increasing global competition for LNG cargoes saw the front-month TTF futures gaining 0.3 per cent durng yesterday’s session, ending the day at 29.67 euros per MWh. The gains have accelerated in today’s session, with the contracts trading around 1.5 per cent above yesterday’s closing price.
Coal prices continued to retreat from the levels seen in early May as markets remained well-supplied and demand faced some headwinds. The June futures for delivery in the Australian port of Newcastle declined by 1.0 per cent, settling at 138.65 dollars per tonne. The contracts for delivery in Rotterdam next month shed 0.8 per cent and ended the day at 106.70 dollars per tonne, the lowest closing price since the end of April.
Iron ore ended yesterday’s trading in the red after recording gains during the previous three sessions. The June futures listed on the SGX retreated by 1.9 per cent, settling at 114.87 dollars per tonne. Rising inventories and concerns over the demand outlook contributed to the bearish sentiments. The contracts have continued to lose ground in today’s trading amid losses of nearly one per cent, bringing prices to the lowest levels since late April.
The base metals recorded relatively minor daily moves yesterday. The three-month copper and nickel futures listed on the LME declined by 0.7 and 0.8 per cent, respectively. On the other hand, the aluminium and zinc futures edged up marginally.
After two days of solid gains, the CBOT wheat futures for delivery in July declined by 1.6 per cent yesterday amid an improving outlook for US winter wheat. Despite a 1.1 per cent decline yesterday, the corn futures remained near the highest level since the beginning of the year as continued rain in key US growing areas caused delays to plantings. The soybean contracts for delivery in July declined by 0.4 per cent.
Freight and Bunker Markets
After a period of daily gains during the early stages of the month, the Baltic Dry Index retreated for a fourth consecutive session on Tuesday. The headline index shed 3.5 per cent yesterday, with much of the negative momentum originating in the largest segment. However, unlike recent days, all the dry bulk freight indices gave up ground on Tuesday.
The sub-index for the capesizes dropped by 5.7 per cent yesterday amid weak demand in the Atlantic basin. The gauge for the panamaxes recorded a decline of 1.9 per cent as cargo ordering activities in the Indian Ocean and the Atlantic faced some headwinds. The indicators for the supramaxes and the handysizes declined by 0.7 and 0.4 per cent, respectively.
In contrast, the Baltic Exchange’s wet freight indices stayed out of the red yesterday. The clean tanker indicator advanced by 3.2 per cent, while the index for the dirty tankers remained unchanged. The gauge for the LNG carriers rose 1.1 per cent, while the LPG tankers recorded a daily gain of 2.5 per cent.
Following losses across the board on Monday, the trading in bunker fuels was more mixed on Tuesday in the world’s leading maritime hubs. The VLSFO gained half a per cent in Houston while declining by 0.5 per cent in Singapore and 0.2 per cent in Rotterdam. The MGO closed 0.9 per cent lower in Singapore but gained 0.6 per cent in Houston and 0.3 per cent in Rotterdam.
The View from the Shipfix Desk
The latest round of US tariffs on some imports from China is raising the prospects for further disruptions to global trade, with an increasing likelihood of more protectionist measures going forward. The Chinese government has already signalled that it is looking to respond to the US initiative, suggesting that some imports from the US will be targeted. However, at this point, most pundits expect that the response from Beijing will be measured rather than an escalation.
US dry bulk exports to China are typically dominated by a seasonal increase during the second half of the year, following the American harvest season. Weekly cargo order volumes for agricultural commodities increase sharply around August and remain elevated until the latter parts of the year. Beyond grains and oilseeds, much of cargo ordering activities cover coal and minor bulks.
The past two months have seen a seasonal decline in demand for seaborne transportation of agricultural commodities between the world’s two largest economies. At the same time, Chinese demand for US coal has been strong. Last month, cargo order volumes for US coal bound for China more than doubled compared to April last year and reached nearly 1.8 million tonnes. The current month has seen a robust start for demand for seaborne transportation of US coal to China, and should developments continue along the same path, total cargo order volumes for May could exceed those recorded in April.
While Chinese imports of US coal look set to increase in the coming months, as indicated by the recent robust cargo order data, Chinese authorities could also target this trade in response to the new US tariffs. Coal from the US accounts for a relatively small part of Chinese imports and should be relatively easy to substitute. Any restrictions on Chinese imports of US coal would primarily affect tonne-mile demand for capesizes and panamaxes, as replacements would likely be sourced from closer exporters. Additionally, if the Chinese leadership decided to target agricultural imports from the US, demand in the mid-sized segments during the second half of the year would come under pressure.
Data Source: Shipfix