The Baltic Dry Index recorded a modest retreat the day before yestrday, with weak demand in the mid-sized segments weighing on the headline indicator. Among the commodities, the base metals had a good day amid robust demand, while iron ore continued to retreat from last week’s high.
By Ulf Bergman
Macro/Geopolitics
Any hopes of normality returning to shipping in the Red Sea and, by extension, the Suez Canal took yet another hit yesterday as a Greek-owned bulker was hit by multiple missiles fired by the Houthi rebels. According to reports, the vessel remained seaworthy and could continue its voyage. However, the latest attack on a commercial ship is likely to further discourage owners and charterers from using the seaway connecting the Mediterranean and the Indian Ocean. In addition, reports today suggest that Iran has supplied the Houthis with sea-launched ballistic missiles, further complicating the situation in and around the Red Sea should it be confirmed.
Commodity Markets
Mounting tensions in the Middle East saw crude oil gain further ground on Tuesday. After beginning the week with a gain of 1.2 per cent on Monday amid limited market activities, the July Brent futures rose by 1.3 per cent yesterday, settling at 84.22 dollars per barrel. The contracts have continued to rise in today’s trading, with gains of around half a per cent.
After gaining throughout much of the past fortnight, European natural gas prices have recently experienced more changeable conditions. The day before yestrday, the front-month TTF futures recorded a daily decline of 4.8 per cent as they ended the session at 33.53 euros per MWh amid softer demand. The contracts initially moved sharply higher in today’s session but have since given up the gains and are trading broadly in line with yesterday’s close.
In contrast to crude oil and natural gas, the coal markets had a relatively uneventful session on Tuesday. The benchmark futures for the Asian and European markets recorded modest losses amid some headwinds for demand. The front-month Newcastle futures shed 0.7 per cent, ending the day at 139 dollars per tonne. The contracts for delivery in Rotterdam in June retreated marginally, settling at 111.70 dollars per tonne.
The recent bullish sentiments for iron ore have faced a reality check over the past few days. After briefly settling above 122 dollars per tonne last week, the SGX June futures have retreated amid some volatility. The front-month contracts shed 1.3 per cent on Tuesday, settling at 117.79 dollars per tonne, as traders remained cautious over inventory levels. However, today’s session has seen the contracts recover amid gains of nearly one per cent.
The base metals had a solid day on Tuesday, as the LME reopened after a bank holiday on Monday, and demand remained robust. The three-month copper futures recorded a daily gain of 1.7 per cent, while the aluminium contracts delivered the session’s standout performance with an increase of 2.5 per cent. The zinc and nickel futures lagged behind somewhat. The former rose by 1.4 per cent, while the latter advanced by 1.1 per cent.
The grain and oilseed futures listed on the CBOT also had a catch-up session as the exchange was closed on Monday for Memorial Day. The wheat futures for delivery in July rose by 0.4 per cent amid concerns over frost damaging the crop in parts of Russia. In contrast, the soybean contracts shed 1.5 per cent amid an upgrade to the production outlook for the year. The corn futures for delivery in July shed half a per cent.
Freight and Bunker Markets
The first session of the week, amid a bank holiday on Monday in the UK, saw most of the dry bulk indices in the red. The headline Baltic Dry Index recorded a modest daily decline of 0.7 per cent, with the downward pressure originating in the mid-sized segments.
The freight gauge for the capesizes recorded a marginal 0.2 per cent decline on Tuesday, as demand and supply remained balanced. The gauges for the panamaxes and the supramaxes retreated by 1.3 per cent on Wednesday, with both segments negatively affected by weak cargo order volumes across all of the major basins. The handysizes went against the flow, with their freight indicator advancing by 2.9 per cent as demand shifted towards more immediate deliveries.
In contrast to the dry bulk indicators, the Baltic Exchange’s wet freight indices were mainly in the black the day before yesterday. The dirty tanker index advanced by half a per cent, while the gauge for the clean tankers bounced back from last week’s losses with a 4.7 per cent gain. The spot indicator for the LNG carriers rose by 1.8 per cent, while the gauge for the LPG tankers shed 1.3 per cent.
On Wednesday, bunker fuel trading was rather uneventful, with only Houston seeing significant price moves. In Singapore, the VLSFO and the MGO advanced by less than half a per cent. Developments in Rotterdam were a bit more diverse, with the VLSFO shedding a quarter of a per cent and the MGO edging up by a quarter of a per cent. In Houston, the VLSFO rose by 2.8 per cent, while the MGO recorded a daily gain of 2.3 per cent.
The View from the Shipfix Desk
After rebounding during the year's first quarter, sugar prices have faced renewed pressure during the past two months. The July #11 sugar futures listed on the ICE have shed around seventeen per cent since the beginning of April. Current prices are also more than 25 per cent below the levels seen in November last year. An improving global supply situation has contributed to the recent retreat amid reports of Brazilian sugar production rising by 84 per cent year-on-year during the second half of April. The rising Brazilian output has come at the expense of falling ethanol production in the country.
A surge in weekly cargo order volumes during February and March contributed to easing pressure on global supplies and, given the data set’s forward-looking qualities, contributed to prices beginning to decline in April as shipments reached their destinations. A brief dip in demand for seaborne transportation of the sweetener around the Easter holidays contributed to sugar prices stabilising during late April and early May. However, a solid rebound in demand for seaborne transportation of sugar from Brazil has put renewed pressure on prices.
Continued robust cargo order volumes during the past few weeks and a strong start to the current week indicate that sugar prices will continue to retreat. Weekly cargo order volumes also remain well above the levels seen a year ago, suggesting that a repeat of last year’s price spike is looking increasingly unlikely.
Data Source: Shipfix