The mid-sized dry bulk segments propelled the Baltic Dry Index higher last week, while the capesizes faced headwinds amid weaker demand. Among the commodities, iron ore and base metals remained under pressure amid continued concerns over the demand outlook.
By Ulf Bergman
Macro/Geopolitics
The new week has begun with yet another batch of mixed Chinese economic data. According to data released earlier today, industrial production in the world’s second-largest economy fell short of pundits’ expectations. Compared to a year ago, output in the manufacturing sector rose by 5.6 per cent, somewhat short of the consensus projection of 6.0 per cent. In addition, the reading was well below April’s annual growth of 6.7 per cent.
On the other hand, China’s consumers regained some confidence last month, with retail sales beating expectations with a year-on-year growth of 3.7 per cent. Analysts had been expecting an increase of 3.0 per cent, following a reading of 2.3 per cent in April. While the industrial production and the retail sales data point towards a somewhat less lopsided Chinese recovery, continued weak property sales and a loss of momentum for fixed asset investments suggest that Beijing may need to boost policy support to achieve this year’s growth target.
Commodity Markets
After solid gains on Monday, the rest of the week was less eventful in the crude oil markets. The early advance came as the US EIA upgraded its demand outlook, but the remaining trading sessions were dominated by rising uncertainty over the demand outlook amid mixed data. Still, despite a minor retreat on Friday, the August Brent futures recorded a weekly gain of 3.8 per cent as they settled at 82.62 dollars per barrel. The contracts have regained their modest upward momentum in today’s trading amid gains of around a quarter of a per cent.
Supply concerns dominated the European natural gas market during much of the past week amid outages at Australian and Norwegian LNG export terminals and an arbitration ruling over Gazprom’s under-deliveries. As a result, the front-month TTF futures delivered a weekly gain of 6.8 per cent, despite a 1.0 per cent decline on Friday, and settled at 35.36 euros per MWh. The negative momentum from Friday’s session, as higher temperatures weighed on demand, has carried into the new week, with losses of approximately 1.5 per cent in today’s trading.
The coal markets endured a more mixed week, although price moves were generally relatively small. After losing considerable ground during the preceding week, last week ended in the black. Still, the uptick may prove short-lived, as demand for seaborne transportation of coal to China and India is facing headwinds. The futures for delivery in the port of Newcastle next month ended last week at 135.15 dollars per tonne amid a weekly gain of 1.6 per cent. The contract for delivery in Rotterdam in July rose by 1.1 per cent over the week and settled at 11.85 dollars per tonne.
For iron ore, the week began deeply in the red, with significant losses on Monday and Tuesday amid mounting concerns over the demand outlook. However, during the remainder of the week, the steel-making ingredient entered recovery mode. As a result, the SGX July futures ended the week with a relatively minor loss of 1.2 per cent as it settled at 107.46 dollars per tonne. Still, in keeping with recent volatility, the positive momentum of the past three sessions lost steam in today’s trading, with the contracts shedding around two per cent.
The base metals had a volatile week amid shifting fortunes for the US dollar and mixed economic data. The three-month copper and zinc futures listed on the LME ended the week broadly unchanged following swings between gains and losses over the past five sessions. In contrast, the aluminium and nickel contracts recorded weekly losses of more than two per cent.
The CBOT July wheat futures recorded a loss of 2.4 per cent over the past five sessions, a third consecutive week in the red, as the outlook for the coming US harvest improved. Losses during Friday’s session offset earlier gains for the corn and soybean contracts, leaving them broadly unchanged for the week.
Freight and Bunker Markets
Despite mixed fortunes for different vessel segments, the Baltic Dry Index delivered a third consecutive weekly gain. The headline index rose by 3.6 per cent amid four sessions in the black. However, in contrast to recent weeks, the capesizes were not the drivers of the positive performance. Instead, the mid-sized segments provided the upward momentum.
The sub-index for the panamaxes was last week’s star performer, with a gain of 11.4 per cent. The segment benefitted from rising demand in the Atlantic, with cargo order volumes in the basin rising by more than seventeen per cent week-on-week. Downward pressure on tonnage supply provided additional support for the freight rates. The gauge for the supramaxes also recorded a healthy weekly gain, with increasing activities for cargoes loading on ECSA contributing to the 6.5 per cent increase. On the other hand, the indicator for the capesizes declined by 1.4 per cent after two weeks of gains, with softer demand across all major basins contributing to the headwinds. The index for the handysizes shed 0.4 per cent over the past week amid limited daily moves.
Among the Baltic Exchange’s wet freight indices, only the gauge for the LNG carriers advanced last week amid a 10.4 per cent gain. The dirty and clean tanker indicators recorded weekly losses of 2.1 and 3.5 per cent, respectively, amid concerns over demand. The index for the LPG tankers delivered last week’s worst performance, dropping 26.6 per cent.
The bunker fuels moved higher for much of the past week, supported by rising crude oil prices. The port of Rotterdam saw the largest price increases, with both VLSFO and MGO recording weekly gains of 4.6 per cent. In Singapore, the two fuels increased by 2.8 and 3.9 per cent, respectively, over the week. Houston saw more limited weekly gains, with VLSFO increasing by 1.4 per cent and the MGO rising by 3.0 per cent.
The View from the Shipfix Desk
The panamaxes were last week’s best performers, with their Baltic Exchange index soaring by 11.4 per cent. This solid performance contributed to the index's gain of more than fifteen per cent during the first half of June. The segment has been in recovery mode since the second half of May, with only a limited number of days in negative territory over the past four weeks.
Over the past month, the panamaxes have benefitted from an improving demand situation for cargoes loading on South America’s east coast. The upward trend for cargo order volumes loading in the area has been supported by rising demand from the grain and oilseed trade, especially from importers in the Far East. The development is likely part of a seasonal rebound. However, based on the patterns of recent years, the surge in demand should be relatively short-lived. Still, the positive momentum is likely to remain in place until the end of the month, when weaker demand could start to weigh on freight rates.
Data Source: Shipfix