The past week saw mixed fortunes for the dry bulk vessel segment. The Baltic Dry Index advanced by one per cent as the mid-sized segments offset much of the positive performances delivered by the largest and smallest vessels. Red dominated the commodity trading screens, with coal futures among the minority that moved higher over the week. Iron ore faced significant headwinds amid concerns over the demand outlook.
By Ulf Bergman
Macro/Geopolitics
As has often been the case over recent months, Caixin’s alternative to the official Chinese Purchasing Managers’ Index provided a more positive outlook for the world’s second-largest economy. In contrast to last week’s disappointing reading of the official PMI, the alternative gauge for the manufacturing sector beat both expectations and last month’s reading. Additionally, and more importantly, it remained in the expansionary territory. The reading of 51.7 was the highest since June 2002 and marked the seventh consecutive month of expansion. The Caixin PMI places greater emphasis on the country’s export industry, and today’s robust reading indicates that China’s overseas trade will continue to grow and fuel demand for commodities and seaborne freight.
Commodity Markets
While the early stages of the past week saw continued gains for crude oil, concerns over the demand outlook saw a reversal of fortunes during the latter sessions. The August Brent futures recorded a weekly decline of 0.9 per cent, ending Friday’s session at 81.11 dollars per barrel. The contracts swung between modest gains and losses in today’s early trading as markets assessed the impact of yesterday’s announcement by OPEC+ that output curbs will remain in place but that the restrictions will be faced out from October. However, since then the contracts have shed more than one per cent.
European natural gas prices experienced a volatile week with sizeable daily price movements in both directions as traders’ attention shifted between soft demand and mounting competition for global supplies. Still, the front-month TTF futures ended the week only marginally below where they started. The contracts settled at 34.22 euros per MWh on Friday amid a weekly decline of 0.5 per cent. The narrative of volatility has carried into the new week, with the futures gaining around eight per cent during Monday’s trading amid a drop in Norwegian supplies.
The benchmark futures for the Asian and European coal markets saw gains for much of the past week. However, for the former, daily increases tended to be modest. Rising demand amid domestic supply issues in China contributed to the July futures for delivery in Newcastle recording a weekly gain of 0.4 per cent as they settled at 143.90 dollars per tonne on Friday. The front-month contracts for delivery in Rotterdam advanced by 4.2 per cent over the week, settling at 121.50 dollars per tonne on Friday, as elevated volatility in the natural gas market fuelled demand.
After two weeks of gains, iron ore sailed into headwinds during the past five sessions as the demand outlook remained under pressure. Suggestions that the recent Chinese stimulus package for the beleaguered property sector will take time to translate into higher steel demand and new measures to control CO2 in China contributed to the bearish sentiments. The July SGX futures recorded a weekly decline of 4.4 per cent, ending Friday’s activities at 115.48 dollars per tonne. The contracts have maintained the negative momentum in today’s session and are trading more than four per cent below Friday’s close.
Losses during the past two sessions contributed to the base metals ending the week in the red. Renewed concerns over the demand outlook and an unwinding of speculative positions weighed on prices on Thursday and Friday. The three-month copper, zinc and nickel futures listed on the LME recorded weekly losses of nearly three per cent, while the aluminium contracts fared better with a decline of 0.3 per cent.
Following robust gains during the preceding five sessions, the grain and oilseed futures listed on the CBOT recorded significant losses last week. An improved supply outlook contributed to last week’s declines. The July wheat futures shed 2.7 per cent over the past week, while the corn and soybean contracts dropped by 3.4 and 4.0 per cent, respectively.
Freight and Bunker Markets
A mixed week for the Baltic Exchange’s dry bulk indices saw the panamaxes and supramaxes offsetting most of the gains in the other segments. Still, a solid performance for the capesizes kept the Baltic Dry Index in the black with a weekly gain of 1.0 per cent.
The freight rate indicator for the largest vessels recorded three days of solid gains during the past week, contributing to a weekly increase of 7.9 per cent. The segment benefitted from a rebound in cargo order volumes in the Pacific and Atlantic basins. The gauge for the handysizes rose by 4.7 amid downward pressure on tonnage supply during the second half of the week. On the other hand, the indices for the panamaxes and supramaxes retreated over the past four sessions as demand remained subdued across all major basins. The former gauge dropped by 7.2 per cent, while the latter retreated by 3.6 per cent.
While all of the Baltic Exchange’s wet freight indices ended the week in the black, weekly gains were, in most cases, modest. The dirty tanker index recorded limited daily moves, ending the week with a gain of 0.6 per cent. For the clean tankers, the past week was more eventful, with a solid start to the week being broadly offset by losses during the second half. The spot index for the LPG tankers edged up by 0.4 per cent, while the gauge for the LNG carriers ended the week with a gain of 3.9 per cent.
The past week’s trading in bunker fuels was a tale of two parts. The week began with gains across the world’s leading maritime hubs, but pressure on crude oil prices during the second half delivered an offset. Still, in many cases, the losses were not enough to fully negate earlier gains, contributing to a mixed week. The VLSFO advanced by 2.5 per cent in Houston and by 0.9 per cent in Rotterdam while recording a weekly decline of 0.5 per cent in Singapore. The MGO ended the week broadly unchanged in Singapore while advancing by 1.3 per cent in Rotterdam and retreating by 1.1 per cent in Houston.
The View from the Shipfix Desk
As highlighted in The Fix last week, Brazil is becoming an increasingly important exporter of sugar. In addition, even if nowhere near as significant, the global rice market also benefits from supply contributions from South America. Still, even if the Brazilian sugar trade is showing considerable strength, aggregate cargo order volumes for agricultural commodities loading on South America’s east coast are experiencing a period of seasonal weakness.
While weekly cargo order volumes are showing signs of a recovery amid an upward trend, recent total volumes remain well below the levels recorded during the early parts of the year. As a result, demand in the mid and small-sized segments has suffered. Compared to average weekly volumes during the first quarter of the year, demand in the panamax segment has been especially hard hit, with a decline of around 40 per cent during the past fortnight. The supramaxes have seen a demand reduction in the trade by approximately a fifth, while the handysizes have fared somewhat better with a decline of around fifteen per cent. The development has contributed to the poor performance of the Baltic Exchange’s indices for the mid-sized segments over the past week.
The suggestion of an upward trend in demand for seaborne transportation of agricultural commodities from the east coast of South America reflects standard seasonal patterns. Should past years’ patterns repeat, weekly cargo order volumes should increase during the coming two months, supporting freight rates in the mid and small-sized segments.
Data Source: Shipfix