Headwinds for the capesizes weighed on the Baltic Dry Index the day before yesterday, which remained in the red for a second session amid a loss of more than two per cent. The commodities had a mixed session on Tuesday, with concerns over the Chinese demand outlook negatively affecting crude oil, iron ore and base metals.
By Ulf Bergman
Macro/Geopolitics
Wednesday’s release of retail sales data for the US during the past month added further evidence that the world’s largest economy is slowing down amid high interest rates. Consumer spending remained unchanged in June compared to the upwardly revised data for May. On closer inspection, a drop in car sales and lower purchases at the country’s petrol stations weighed on last month’s total. The weaker-than-expected retail sales added additional fuel to expectations that the Federal Reserve would begin lower interest rates in September, with the probability of a second cut in November on the rise. As a result of the mounting expectations of an easing of monetary policy during the autumn, the US dollar index dropped to the lowest level in nearly four months the day before yesterday.
Commodity Markets
Crude oil prices declined for a third consecutive session on Tuesday as investors remained cautious about the Chinese demand outlook amid continued headwinds for the world’s second-largest economy. The September Brent futures ended the day at 83.73 dollars per barrel, the lowest closing price in a month, following a 1.2 per cent drop. However, the contracts have reversed course in today’s trading amid gains of around half a per cent.
European natural gas prices continued the recent swing between daily gains and losses during Tuesday’s trading session. The front-month TTF futures surged by 4.5 per cent yesterday, settling at 32.80 euros per MWh, amid mounting concerns over supply disruptions in the coming months. The contracts gained during the early stages of yesterday’s session but have since slipped into the red with losses approaching two per cent.
Coal prices rose for a third straight session yesterday, fuelled by higher demand amid rising natural gas prices in Europe and Asia. The Newcastle futures for delivery in August rose by 0.4 per cent, ending the day at 138.25 dollars per tonne. The contracts for delivery in Rotterdam next month settled at 110.95 dollars per tonne, following a daily gain of 1.6 per cent.
Iron ore prices came under pressure on Wednesday as markets awaited news from the ongoing Third Plenum in China regarding further measures to support the economy amid weak domestic demand. The SGX futures for delivery next month shed 1.4 per cent, ending Tuesday’s session at 107.36 dollars per tonne. The headwinds have persisted in today’s trading, with the contracts retreating by around two per cent.
Concerns over the demand outlook amid high inventory levels weighed on the base metals during Wednesday’s session. The three-month copper futures listed in the LME shed 1.5 per cent, while the daily losses for the aluminium and zinc contracts approached 2.5 per cent. The nickel futures faced lighter headwinds and ended the session 0.6 per cent below Monday’s close.
Wednesday's trading delivered mixed results after substantial losses for the grain and oilseed futures listed on the CBOT during Monday’s activities. The September wheat futures shed a third of a per cent as the supply outlook remained bullish. On the other hand, the corn and soybean contracts rebounded amid gains of 1.3 and 0.4 per cent, respectively.
Freight and Bunker Markets
The Baltic Dry Index dropped by 2.6 per cent yesterday as continued losses for the capesizes kept it in the red for a second session. The sub-index for the largest vessels dropped by 5.0 per cent as weak demand across all major basins weighed on freight rates. On the other hand, the gauge for the panamaxes advanced for a sixth consecutive session amid a gain of 0.6 per cent as demand in the Atlantic remained increasingly focused on tonnage for immediate delivery. The indicators for the supramaxes and handysizes remained broadly unchanged for the day.
The wet freight indices provided by the Baltic Exchange had a session of losses on Tuesday. The gauge for the dirty tankers faced the lightest headwinds amid a daily loss of 0.3 per cent, while the indicator for their clean relatives dropped by 2.5 per cent. The spot index for the LNG carriers fell by 3.2 per cent, while the LPG gauge retreated by 1.9 per cent.
The continued downward pressure on crude oil prices led to a second day of losses for the bunker fuels. The VLSFO and MGO shed around two-thirds of a per cent in Singapore, while Houston saw the two fuels retreat by just over 1.5 per cent. In Rotterdam, the VLSFO declined by 0.9 per cent, while the MGO fell by 1.3 per cent.
The View from the Shipfix Desk
The rice futures due for delivery in September are currently trading around eight per cent below the levels seen a month ago. The recent decline followed a period of robust gains during the first half of the second quarter, as low cargo order volumes at the early stages of the year weighed on global supplies. Rice prices have faced significant volatility over the past few years amid rising demand and headwinds for global supplies as extreme weather conditions in key growing areas have weighed on production. As a result of the latter, the Indian government introduced export restrictions last year to safeguard domestic supplies, which made the global supply situation even more challenging.
After depressed cargo order volumes during much of last year, demand for seaborne transportation of rice has recovered over the past ten months. While global aggregate demand remains below the levels recorded during 2021, monthly cargo order volumes have been around six million tonnes during the second quarter. Initially, in the absence of India, exports from Pakistan and Thailand fuelled the recovery. However, the resumption of shipments from India earlier this year has become the main driver since then.
While weekly cargo order volumes for rice loading globally have been volatile over the past months, the robust volumes have contributed to a better-supplied global market and driven prices to the current low levels. The aggregate for the first half of July suggests that the month’s total may surpass the reading for June. Hence, rice prices look set to remain under pressure in the coming months.
Data Source: Shipfix