The Baltic Dry Index continued to advance last week, but unlike the preceding one, the capesizes and the smaller segments, rather than the panamaxes, propelled it higher. Among the commodities, red dominated the trading screens last week, but crude oil belonged to the minority moving higher.
By Ulf Bergman
Macro/Geopolitics
The past week delivered some disappointing economic data for the world’s two largest economies. In China, the mood of the country’s consumers was better than expected, fueling some optimism regarding domestic demand. Still, weak industrial production led to some pundits calling for more support for the economy. On the other side of the Pacific, weaker-than-expected US retail sales and a softening of the labour market raised hopes of an interest rate in September despite continued hawkish statements from several Federal Reserve officials.
The week ahead will provide further clarity over the prospects of a US interest rate cut in the near term, with the US core PCE price index for May released on Friday. The gauge is the US central bank’s preferred measure for inflation, and a continued decline would increase the likelihood of an easing of US monetary policy sooner rather than later.
Commodity Markets
Despite a minor retreat on Friday, crude oil advanced over the past week amid an improved demand outlook. A more significant drop than expected in US inventories contributed to the bullish sentiments. The August Brent futures ended Friday’s session at 85.24 dollars per barrel, 3.2 per cent higher than a week earlier. Today’s trading has seen the contracts remain broadly in line with Friday’s close.
Weaker demand weighed on European natural gas prices during much of the past week, but brief supply concerns amid outages at export terminals caused some daily gains. Still, the TTF futures for delivery next month recorded a weekly decline of 4.0 per cent, ending Friday’s session at 33.94 euros per MWh. The new week has begun with the contracts edging up by around half a per cent. .
The benchmark futures for the European and Asian coal markets saw some volatility last week, but softer demand contributed to a downward trend over the past five trading sessions. The futures for delivery in the port of Newcastle next month recorded a weekly decline of 2.0 per cent, settling at 132.50 dollars per tonne, with Shipfix cargo order volumes indicating lower Chinese and Indian demand for seaborne imports of coal. The July contracts for delivery in Rotterdam shed 3.1 per cent over the week, ending Friday’s activities at 108.40 dollars per tonne, with lower European natural gas prices contributing to the decline.
Iron ore faced continued headwinds last week as the demand outlook remained weak. The SGX futures for delivery next month recorded a fourth consecutive week in the red. The contracts settled at 105.10 dollars per tonne, 2.2 per cent lower than a week earlier. The new week has begun with further losses, with the contracts trading approximately 2.5 per cent below Friday’s closing price.
The base metals endured a week of some volatility as headwinds for demand competed with concerns over global supplies. The week ended with most base metals in the red amid losses on Friday. The three-month copper LME futures recorded a weekly decline of 0.6 per cent as trading ended on Friday, while the aluminium and nickel contracts recorded aggregate losses of 0.2 and 2.0 per cent, respectively. On the other hand, the zinc futures ended Friday’s session with a weekly increase of 2.8 per cent, following robust gains during the first half of the week.
The grain and oilseed futures listed on the CBOT declined sharply over the past week amid bullish sentiments over the global supply situation and some reports of lower Chinese demand. The July wheat futures led the way lower amid a weekly loss of 8.4 per cent, while the corn and soybean contracts shed 3.3 and 1.6 per cent, respectively.
Freight and Bunker Markets
The Baltic Dry Index rose by 2.5 per cent over the last five sessions, a fourth consecutive week of gains. However, a shift in fortunes among the dry bulk segments saw the capesizes, rather than the panamaxes, providing much of the upward momentum.
The gauge for the largest vessels rose by 6.3 last week, but not without some volatility amid two days in the red. The capesizes benefitted from continued downward pressure on vessel availability, and that demand remained focused on more immediate deliveries. The index for the supramaxes recorded a weekly gain of 4.7 per cent amid steady gains throughout the week. The mid-sized segment saw continued downward pressure on global cargo order volumes. Still, declining tonnage supply in the Atlantic basin and a drop in market lead times in the Indian Ocean contributed to the past week’s bullish developments. The indicator for the handysizes climbed by 5.9 per cent last week, with lower tonnage supply in the Atlantic and Pacific basins supporting the gains. On the other hand, the previous week’s winners, the panamaxes, declined by 6.3 per cent over the past five sessions. Lower cargo order volumes across the major basins and rising tonnage supply fuelled the shift in fortunes.
The Baltic Exchange’s wet freight indicators had a week of mixed performances. The dirty and clean indices recorded limited daily losses throughout the week amid lower demand. As a result, the former gauge delivered a weekly decline of 2.8 per cent, while the latter shed 4.0 per cent. The spot indicators for the gas carrier had a better week. The LNG tankers advanced by 13.9 per cent last week, with all of the gains recorded during Friday’s session. The LPG gauge rose by 4.6 per cent amid a solid session on Tuesday.
The trading in marine fuels recorded a second consecutive week of gains across the world’s major bunkering hubs amid rising crude oil prices. In Singapore, the VLSFO and the MGO recorded weekly gains of 3.0 per cent, while Houston saw the two fuels rise by more than 2.2 per cent. In Rotterdam, developments for the VLSFO and the MGO were somewhat more diverse, with the former fuel rising by 1.1 per cent over the week and the latter advancing by 2.6 per cent.
The View from the Shipfix Desk
The Newcastle coal futures for delivery next month ended last week at the lowest level since the first few days of April. However, the contracts were on an upward trajectory in April, which ended at the beginning of May, as demand from the world’s leading importers of the dirtiest of fossil fuels rose. After remaining rangebound for much of May, the futures had, by the end of last week, declined by around eight per cent month to date. As highlighted in the past two editions of “The Fix”, declining cargo order volumes for coal discharging in Chinese and Indian ports point towards lower demand for seaborne imports in recent weeks. This development has contributed to the lower prices.
However, it is not just in China and India that coal imports will face headwinds. The seaborne coal trade is also facing seasonal weakness in the other parts of the Far East and Southeast Asia. After elevated, albeit volatile, weekly cargo order volumes during the past three months, the past few weeks have seen demand under pressure in the two regions. In the Far East, excluding China, weekly volumes have dropped from around four million tonnes to three million tonnes in the past two weeks. In South East Asia, recent weekly volumes are less than half of the average for April. Still, demand in South East Asia should start to recover during the second half of August, with the Far East following suit shortly after.
Together with the downward trend for cargo order volumes for coal discharging in China and India, the seasonal weakness in the rest of the Far East and Southeast Asia will contribute to continued pressure on the short-dated Newcastle coal futures. The softer demand for seaborne transportation of coal will also contribute to headwinds for demand in the mid-sized dry bulk vessel segments.
Data Source: Shipfix