The Baltic Dry Index retreated for the first time in over a week on Tuesday as the capesizes suffered amid weak demand across the major basins. Among the commodities, iron ore and base metals were among yesterday’s losses, with concerns over the Chinese demand outlook weighing on prices.
By Ulf Bergman
Macro/Geopolitics
China’s consumer prices rose marginally less than expected last month. Compared to a year ago, prices rose by a meagre 0.3 per cent. While the reading represented a fourth consecutive month of inflation after a period of deflation, the low level nevertheless highlighted the sluggish recovery of domestic Chinese demand. As a result, it raised calls for more initiatives to support the economy.
Across the Pacific, US inflation data for May also fell somewhat short of expectations. The annual inflation rate was 3.3 per cent, while markets had expected it to remain in line with April’s reading of 3.4 per cent. The data release contributed to the US dollar giving up some of its recent gains as it increased the likelihood of the Federal Reserve lowering interest rates during the second half of the year.
Commodity Markets
An improving demand outlook amid the EIA's upward revision of global consumption during the year ahead contributed to continued gains for crude oil yesterday. The August Brent futures recorded a daily advance of 0.4 per cent and ended the day at 81.92 dollars per barrel, the highest closing price in nearly two weeks. The contracts have remained on the recent upward trajectory in today’s trading amid gains of around one per cent.
After gains of around 3.5 per cent on Monday, European natural gas prices ended yesterday’s session broadly unchanged as rising storage levels offset concerns over mounting competition for LNG supplies. The front-month TTF futures settled at 34.29 euros per MWh, marginally above Monday’s close. However, today’s early trading has seen the contracts moving higher yet again amid gains of around four per cent.
The benchmark futures for the Asian and European coal markets also had an uneventful session on Tuesday. The July futures for delivery in the port of Newcastle shed 0.3 per cent, settling at 133.35 dollars per tonne, as expectations of lower Chinese demand for imported coal weighed on activities. The contracts for delivery in Rotterdam next month shed a quarter of a per cent, ending the session at 110.65 dollars per tonne.
Concerns over the Chinese demand outlook continued to weigh on iron ore prices yesterday. The SGX July futures ended the day at 103.71 dollars per tonne, the lowest since the second week of April, following a daily drop of 2.3 per cent. Still, the contracts have staged a limited rebound in today’s trading, with gains of around one per cent.
The base metals also suffered amid an increasingly uncertain Chinese demand outlook. The three-month copper and aluminium futures listed on the LME ended Tuesday’s session with losses of around 1.5 per cent. The zinc and nickel contracts also ended the session in the red, with the former shedding 2.8 per cent and the latter declining by 0.4 per cent.
The grain and oilseed futures listed on the CBOT experienced a session of mixed fortunes on Tuesday. The July wheat contracts ended a run of nine consecutive sessions in the red with a daily gain of 3.1 per cent as dry conditions in Russia threatened to reduce output. On the other hand, the corn and soybean futures declined by 0.5 and 0.9 per cent, respectively, amid reports of lower Chinese demand.
Freight and Bunker Markets
After five consecutive sessions of gains, albeit limited in many cases, the Baltic Dry Index slipped into the red on Tuesday. The headline index recorded a daily decline of 2.8 per cent, with the capesizes providing most of the downward momentum.
The sub-index for the largest vessels dropped 6.7 per cent following two days of limited ordering activities across the major basins. The gauge for the handysizes also ended the day in the red, although the loss was limited at 0.4 per cent. In contrast, the mid-sized segments saw their freight gauges advancing on Tuesday. The indicator for the panamaxes rose by 2.1 per cent, with increasing demand in the Atlantic providing support. The index for the supramaxes advanced by 1.1 per cent as demand shifted towards more immediate deliveries.
The Baltic Exchange’s wet freight indices also had a session of mixed fortunes on Tuesday. The gauge for the dirty tankers remained broadly unchanged for the day, while the indicators for the clean and LPG tankers declined by 1.8 and 2.0 per cent, respectively. On the other hand, the spot index for the LNG carriers rose by 5.6 per cent.
After Monday's limited but mixed price moves, bunker fuels rose across the board yesterday, supported by higher crude oil prices. The VLSFO recorded daily gains of around one per cent in the world’s leading maritime hubs. For the MGO, the session delivered more diverse results. The latter fuel advanced by 1.8 per cent in Singapore, while the daily gains were a bit more modest in Rotterdam and Houston at 0.9 and 0.3 per cent, respectively.
The View from the Shipfix Desk
After a few weeks of headwinds, the Baltic Exchange’s panamax index has recorded five consecutive sessions of gains. The gauge declined by more than eight per cent in May but has since gained around six per cent. However, despite the downward pressure during the past month, the gauge is currently nearly 58 per cent above the level recorded a year ago.
After a spike in weekly cargo order volumes in early May, demand trended lower throughout the remainder of the month. The decline affected all major basins but was more pronounced in the Indian Ocean and the Pacific. In the two latter basins, weekly cargo order volumes declined by nearly 40 per cent over the month. The drop in demand in the Atlantic was less severe at around twenty per cent, with cargo ordering activities seeing a minor rebound at the end of the month.
The current week has begun with some positive developments in the Atlantic, with cargo order volumes providing support for freight rates as demand is somewhat higher than a year ago. However, activities in the other basins have remained subdued during the early stages of the month. Cargo order volumes will likely remain under pressure during the remainder of June as seasonal factors will continue to weigh on demand.
Tonnage supply has been trending higher in the Atlantic and Pacific basins over the past two months, with current weekly levels well above the average. On the other hand, vessel availability in the Indian Ocean has been more stable, with numbers currently a bit below the long-term average.
While demand in the Atlantic has provided some respite for the panamaxes over the past week, the segment will likely continue to face headwinds amid seasonal weakness that, under normal circumstances, will last until the end of the month. In addition, the supply situation looks set to contribute to additional weakness.
Data Source: Shipfix