The past week saw all of the Baltic Exchange’s dry bulk indices ending in the red amid soft demand, with the headline Baltic Dry Index shedding more than thirteen per cent. An improving demand outlook amid rising hopes of lower interest rates in the US during the second half of the year provided support for many commodities. In addition, stronger-than-expected Chinese industrial production contributed to iron ore recovering from recent losses.
By Ulf Bergman
Macro/Geopolitics
The past week delivered some data that eased many traders' concerns over the outlook for the global economy. In the US, inflation data eased compared to the readings in April, raising hopes among investors that the Federal Reserve will begin to lower interest rates during the second half of the year. As a result, the US dollar continued to weaken, and investors upgraded their demand outlook for many commodities. Across the Pacific, Chinese industrial data proved more robust than expected, with the country’s manufacturing output expanding by 6.7 per cent compared to a year ago. Still, consumer sentiments remained sluggish in the world’s second-largest economy. However, an ambitious programme to support the country’s ailing real estate sector presented last week may alleviate some of the weakness in the coming months.
In the week ahead, PMI data for the Eurozone and the US will provide further insights into the state of two of the world’s major markets on Thursday. In addition, US durable goods data will be released on Friday.
Commodity Markets
An improving demand outlook amid lower-than-expected US inventories and an increasing probability that the Federal Reserve will start lowering interest rates this year contributed to gains for crude oil over the past week. The July Brent futures recorded a weekly gain of 1.4 per cent as they settled at 83.98 dollars per barrel on Friday. The contracts initially saw further gains today but have since retreated by around half a per cent.
European natural gas prices moved higher last week as traders focused on the need to rebuild inventories for next winter amid greater global competition for LNG shipments. The front-month TTF futures advanced by 2.5 per cent over the course of the week, ending Friday’s session at 30.77 euros per MWh. The new week has begun with gains of around four per cent, but trading volumes remain low amid public holidays across parts of Europe.
In contrast to oil and natural gas, the benchmark futures for the Asian and European coal markets faced headwinds for much of the past week. Softer demand and robust supplies contributed to lower prices for the dirtiest of fossil fuels. The contracts for delivery in the Australian port of Newcastle next month ended Friday’s session at 140.50 dollars per tonne, 3.7 per cent below the level at the end of the previous week. The front-month Rotterdam futures recorded a weekly decline of 0.4 per cent as they settled at 109.25 dollars per tonne on Friday.
Robust Chinese industrial production data and further support for the country’s beleaguered property sector contributed to a limited recovery for iron ore last week. The June futures trading at the SGX rose by 1.2 per cent last week, ending Friday’s session at 117.39 dollars per tonne. The weekly gain offset the losses from the previous five trading sessions. The contracts have recorded further gains in today’s session and are trading around one per cent above Friday’s close, the highest in two weeks.
The base metals had a good week, with Friday’s session contributing significantly to the solid weekly numbers. A weaker US dollar and a good demand outlook propelled prices significantly higher. The three-month copper futures listed on the LME recorded a weekly increase of 6.6 per cent, while the zinc and aluminium contracts saw gains of nearly three and a half per cent. Still, nickel delivered the week’s standout performance, with the futures soaring by 11.2 per cent.
The July wheat and corn futures listed on the CBOT lost ground over the past week as the global supply outlook improved. The wheat contracts recorded a weekly decline of 1.8 per cent, while the corn futures dropped by 3.7 per cent. In contrast, the July soybean futures recorded a weekly increase of 0.7 per cent amid some concerns over the flooding in some parts of Brazil’s growing area.
Freight and Bunker Markets
The Baltic Exchange’s dry bulk indices retreated over the past week, with the capesizes leading the way lower. Despite gains on Friday, the Baltic Dry Index recorded a weekly decline of 13.4 per cent, with the largest vessels providing a large portion of the downward momentum.
The sub-index for the capesizes rose by 4.6 per cent on Friday, but despite this, it delivered a weekly decline of 18.7 per cent. Low cargo order volumes in the Atlantic basin contributed to the weak performance of the past week. The indicator for the panamaxes stayed in the red over the past five sessions, delivering a weekly decline of 9.9 per cent as demand in the Pacific and Atlantic basins came under pressure. The smaller segments also retreated last week, albeit to a lesser extent. The gauges for the supramaxes and handysizes shed 5.4 and 1.8 per cent, respectively, with both segments affected by softer supply.
The Baltic Exchange’s wet indices had a better week, with all ending in the black. The clean and dirty tanker indicators recorded weekly gains of 4.0 and 3.5 per cent, respectively, amid an improving demand outlook. The index for the LPG carriers rose by 11.9 per cent, while the spot gauge for the LNG tankers advanced by 2.6 per cent.
The trading in bunker fuels delivered mixed results across the world’s leading maritime hubs last week. Despite limited gains for crude oil, the VLSFO faced some headwinds in the early parts of the past week. In Singapore and Rotterdam, the fuel shed 1.7 and 1.6 per cent, respectively, while losses were more modest in Houston at 0.8 per cent. For the MGO, the past week delivered mixed fortunes. The fuel recorded a weekly decline of 1.7 per cent in Singapore while gaining 1.1 per cent in Rotterdam and 0.8 per cent in Houston.
The View from the Shipfix Desk
The European sanctions on coal shipped from Russian ports in the wake of the invasion of Ukraine added additional disruptions to global trade. The European move has especially affected the shipments from Russia’s terminals in the Baltic Sea. Traditionally, a large part of the coal exported from the ports in the Baltic Sea did the short voyage to ports in Europe. However, for nearly two years, the coal shipped from this region has needed to travel further afield to reach buyers.
In addition to losing access to an important market, the Russian coal trade from the Baltic Sea has seen downward pressure on export volumes. While Indian and Chinese buyers, among others, have made up for some of the shortfall, it has not been sufficient to keep volumes at the levels seen a few years ago.
Weekly cargo order volumes for Russian coal loading in the Baltic Sea have been volatile over the past two years. This narrative has been particularly strong in recent months. After significant strength during the middle of April, recent weeks have seen demand for seaborne transportation trending sharply lower. The peaks during the past month were due to substantial interest from buyers in the Middle East and India. Given the forward-looking nature of the cargo order data, actual export volumes should remain robust for May, but volumes next month are likely to suffer.
The volatile nature of the demand for Russian coal shipped from the Baltic Sea also affects the nature of the trade. During periods of relatively low demand, average cargo sizes tend to be lower. However, during spikes in cargo order volumes, the larger segments, notably panamaxes, usually benefit.
Data Source: Shipfix