Gains for the capesizes amid improving demand were broadly offset by continued weakness for the panamaxes on Thursday, contributing to only a modest increase for the Baltic Dry Index. The commodities markets were affected by headwinds, which saw many ending the day in the red. Coal and natural gas were among the few advancing, while iron ore continued to decline after a brief respite on Wednesday.
By Ulf Bergman
Macro/Geopolitics
Industrial activities unexpectedly contracted over the past month in China, dealing a blow to the recent positive momentum of the world’s second-largest economy. According to the country’s statistical authority, the Purchasing Managers’ Index for the manufacturing sector fell to 49.5 in May, signalling a modest decline in industrial production. The reading was the lowest since February and well below the market’s expectations of 50.5. The gauge for the non-manufacturing sector also failed to impress, as it edged down instead of rising as analysts had expected. Still, the latter indicator remained in expansionary territory with a reading of 51.1, but it was the weakest showing since January.
The latest Chinese economic data renew concerns over the outlook for the Chinese economy. In light of the continued travails of the country’s real estate sector, the Chinese leadership viewed the manufacturing sector as the engine that would keep growth on track. However, as highlighted in a recent Shipfix research blog post, the weakness may prove short-lived as Chinese copper demand remains robust and steel exports decline.
Commodity Markets
Crude oil declined on Thursday as revised data showed that the US economy expanded by a meagre 1.3 per cent year-on-year during the first quarter. Additionally, further hawkish signals from Federal Reserve officials contributed to the decline. The August Brent futures recorded a daily loss of 1.9 per cent, settling at 81.88 dollars per barrel. The contracts have swung between modest gains and losses in today’s trading, remaining broadly in line with yesterday’s close.
Expectations that warmer weather will fuel higher demand contributed to European natural gas prices advancing on Thursday. In addition, competition for LNG cargoes remained stiff globally. The July TTF contracts ended the session at 35.35 euros per MWh, following a 3.4 per cent gain for the day. Today’s trading has seen the contracts remain broadly unchanged.
Higher demand and rising natural gas prices contributed to gains for coal yesterday. The July futures for delivery in the port of Newcastle rose by 0.8 per cent, settling at 143.20 dollars per tonne. The contracts for delivery in Northwest Europe gained 1.5 per cent, ending the day just below 120 dollars per tonne.
Iron ore continued to retreat amid concerns over demand and inventory levels. The SGX July futures delivered a daily loss of 2.8 per cent and ended the session at 115.63 dollars per tonne, the lowest closing price since the middle of the month. The contracts have seen modest losses in today’s session and are trading approximately a third of a per cent below yesterday’s closing price.
The base metals had a session dominated by significant headwinds amid rising concerns over the immediate demand outlook. The three-month copper futures listed on the LME declined by 3.1 per cent, while the aluminium and nickel contracts shed more than two per cent. The zinc futures recorded the smallest decline amid a one per cent retreat.
The grain and oilseed futures listed on the CBOT recorded a second day of headwinds across the board amid an improved supply outlook. The wheat and corn futures for delivery in July shed 1.7 and 1.4 per cent, respectively. On the other hand, the losses for the soybean contracts were more limited at 0.4 per cent.
Freight and Bunker Markets
The Baltic Dry Index recorded a limited increase for a second consecutive session on Thursday, with gains for the capesizes offset by weakness among the panamaxes. At the same time, the indicators for the smaller segments recorded only minor daily moves.
The headline index advanced by 0.6 per cent, with most of the upward momentum coming from the capesizes. The gauge for the largest vessels benefitted from robust demand and rose by 2.8 per cent. The index for the panamaxes fell by 2.5 per cent as global demand remained under pressure. The supramaxes saw their freight gauge decline by half a per cent, while the sub-index for the handysizes continued to move higher amid a 0.8 per cent increase.
Among the Baltic Exchange’s wet freight indices, only the gauge for the clean tankers recorded a significant move yesterday with a 1.7 per cent decline. The dirty tanker index edged up with a marginal 0.2 per cent. The spot gauge for the LNG tankers remained unchanged, while the LPG carriers saw their indicator advance 0.4 per cent.
Declining crude oil prices weighed on the bunker fuel trading yesterday. The VLSFO declined by more than half a per cent in Singapore and Rotterdam, while the losses were limited to a third of a per cent in Houston. The MGO faced stiffer headwinds, with the fuel declining by a bit more than one per cent in Singapore and Houston. In Rotterdam, the losses for the latter fuel were a bit more measured at 0.6 per cent.
The View from the Shipfix Desk
Rice prices have been trending higher over the past year. The July rough rice futures listed on the CBOT are currently trading nearly fifteen per cent higher than a year ago. Still, the past year has been anything but plain sailing amid extensive price volatility. Since the beginning of February, the contracts have experienced considerable shifts in fortunes, with the past month no exception amid a decline of around eight per cent. Rising global demand in the face of increasingly challenging growing conditions in many key regions has contributed to the elevated and volatile price levels.
Rice prices gained ground during the second half of last year as shipments from India dwindled amid export restrictions. However, a surge in demand for seaborne transportation of rice from Pakistan during the fourth quarter provided an offset, leading to prices coming under pressure during February and March as shipments reached their destinations. However, a weak start to the year for cargo ordering activities saw rice prices rebounding sharply in April.
In recent months, we have seen volatile weekly cargo order volumes for rice. While India has reappeared among the world’s leading exporters, volumes are considerably lower than in past years. The past two weeks have seen relatively robust ordering activities for rice loading globally. Still, despite this, the aggregate for the whole of May is around five million tonnes, somewhat below the average for the past eight months. In addition, the monthly global aggregate demand has been trending lower since March, suggesting that the recent downward pressure on prices may prove short-lived.
Data Source: Shipfix