The past week saw the Baltic Dry Index recovering large parts of the losses realised during the final stages of April, with the capesizes chiefly responsible for the positive development. Crude oil was among last week’s outliers as easing tensions in the Middle East weighed on prices. In contrast, coal ended the past week higher amid robust demand.
By Ulf Bergman
Macro/Geopolitics
The US dollar experienced some swings throughout the past week. However, the weaker-than-expected labour market data released on Friday put the greenback firmly in the red for the week. The week began with mounting expectations that the Federal Reserve would push any monetary easing further into the future as inflation remained elevated. Some market participants even speculated that the US central bank may be forced to hike interest rates further. After the Fed left interest rates unchanged, as widely expected, and its Chair ruled out any further increases in this cycle, the dollar faced some headwinds. The decline accelerated as US job creation failed to meet market expectations, suggesting that the world’s largest economy is slowing down. As a result, the US dollar index recorded a weekly decline of one per cent, which could contribute to higher commodity prices and freight rates in the near term amid higher demand.
The week ahead will see Chinese trade data for April released on Thursday. After disappointing readings last month, markets are expecting that exports grew by 1.0 per cent year-on-year last month and that imports were 5.4 per cent higher than a year ago. Additionally, inflation data for the world’s second-largest economy will be published on Saturday.
Commodity Markets
Crude oil spent most of the past week in the red as a wider conflict in the Middle East was perceived as increasingly unlikely, easing supply concerns. The July Brent futures eventually ended the week at 82.96 dollars per barrel, 6.0 per cent below the previous Friday’s close. However, the new week has begun with gains of nearly one per cent amid expectations of further output cuts from OPEC+.
The past week was volatile for European natural gas prices as supply disruptions and weaker demand pulled markets in opposite directions. Still, concerns over supplies from Norway contributed to the front-month TTF futures recording a weekly gain of 5.5 per cent as they settled at 30.53 euros per MWh on Friday. Today’s trading has seen the contracts continuing to move higher amid gains of around four per cent.
Robust demand from buyers in China and India and higher natural gas prices contributed to gains in the coal futures markets. The front-month futures for delivery in the port of Newcastle had a solid start to the week, resulting in a weekly gain of 5.7 per cent as they settled at 145.40 dollars per tonne on Friday. The gains for the European benchmark futures were more modest. The June Rotterdam contracts ended Friday’s session at 109 dollars per tonne, 1.8 per cent above the previous week’s close.
After three weeks of gains, iron ore ended Friday’s trading broadly unchanged compared to a week earlier. Labour Day holidays in many parts of the world contributed to lower trading volumes and limited price moves. The new week has seen increased activity, with the contracts gaining around two per cent during today’s session.
The base metals had a solid end to the week, with a weaker dollar supporting markets on Friday. Despite the robust gains during the week’s final trading session, the base metals had a week of mixed fortunes. The three-month copper and aluminium futures listed on the LME recorded weekly losses of around two-thirds of a per cent. In contrast, the zinc and nickel contracts ended the week with gains. The former advanced by 2.1 per cent, while the latter gained 0.7 per cent.
The July wheat futures listed on the CBOT ended the week unchanged, as losses during the first half were offset by gains on Thursday and Friday. Initially, a robust supply outlook from USDA weighed on prices, but dry weather conditions in some parts of the US contributed to the late recovery. Flooding in Southern Brazil hampered the soybean harvest over the past week, contributing to the oilseed’s July futures gaining 3.2 per cent last week. Slow planting progress and the weaker dollar contributed to the July corn futures advancing by 2.3 per cent over the past week.
Freight and Bunker Markets
After losses the week before, the Baltic Dry Index bounced back over the past five sessions amid considerable strength for the capesizes. The headline index advanced by 9.0 per cent last week, as Thursday and Friday delivered solid gains and mirrored developments in the largest segment.
The sub-index for the capesizes began the week in the red but recovered as the week progressed. Solid gains on Thursday and Friday, amid downward pressure on vessel supply, contributed to a weekly gain of 23.1 per cent for the capesize freight indicator. The gauge for the panamaxes also managed to end the past week in the black amid a marginal weekly gain of 0.3 per cent. On the other hand, the smaller vessel segments faced limited headwinds throughout last week as weak cargo order volumes across all major basins weighed on freight rates. The indicator for the supramaxes declined by 2.5 per cent, while the gauge for the handysizes shed 2.9 per cent.
The week was relatively uneventful for most of the Baltic Exchange’s wet freight indices. The dirty tanker index recorded a weekly gain of 0.9 per cent, while the clean equivalent shed 0.9 per cent. The spot gauge for the LNG carriers declined by 1.4 per cent amid some weakness at the beginning of the week. In contrast, the LPG freight indicator surged by 13.2 per cent amid robust gains throughout the week.
Falling crude oil prices weighed on the trading in bunker fuels last week. In Singapore, the VLSFO recorded a weekly loss of 3.7 per cent, with Friday’s closing price the lowest since early February. Still, losses were even more substantial in Houston and Rotterdam. The weekly loss in the US port reached 5.0 per cent, while the European hub recorded a decline of 4.3 per cent over the past five sessions. For the MGO, roles were reversed, with Singapore seeing the largest weekly decline at 5.5 per cent. In Houston, the latter fuel shed 3.4 per cent, while Rotterdam recorded a weekly loss of 2.6 per cent.
The View from the Shipfix Desk
While a far cry from the dizzy heights of the capesizes, the Baltic Exchange’s panamax index ended the past week in positive territory. A third of a per cent gain for the week was the result of a late recovery for the segment, following some losses on Monday and Tuesday. However, despite falling short compared to their larger siblings during the past week, the panamaxes’ freight index ended it more than 22 per cent higher than a year ago.
Last week’s modest gain resulted from declining tonnage supply offsetting weak demand. While demand in the Indian Ocean remained broadly in line with the average weekly volumes year-to-date, cargo ordering activities in the Atlantic and Pacific basins faced considerable headwinds. Compared to the weekly average for the past four months, cargo order volumes fell by more than thirty per cent.
However, in a longer perspective, developments during the past week mirrored those of early May last year. Should last year’s patterns repeat themselves, the coming weeks are likely to see a rebound in cargo order volumes. The past week saw a lower tonnage supply than a year ago, and, as a result, a rebound in ordering activities would support higher freight rates. Still, based on regular seasonal patterns, higher cargo volumes for the panamaxes may prove short-lived, with softer demand likely to develop during the latter parts of the month and into the next.
Data Source: Shipfix