The Baltic Dry Index recorded a gain of nearly three per cent last week as the capesizes’ fortunes shifted during the last three sessions. However, the panamaxes remained under pressure and offset some of the gains on the larger segment. Among the commodities, coal, grains and soybeans continued to face headwinds, while iron ore recovered somewhat following several weeks of losses.
By Ulf Bergman
Macro/Geopolitics
Yet again, China’s two competing Purchasing Managers’ Indices have delivered different outlooks for the country’s manufacturing sector. The official gauge released by the Chinese statistics authority yesterday remained unchanged from a month ago, with a reading of 49.5. While the level was in line with the market’s consensus projection, it nevertheless indicated that the industrial output in the world’s second-largest economy will see continued, albeit limited, contraction.
On the other hand, the manufacturing PMI released by Caixin earlier today painted a more positive outlook. The gauge rose to 51.8, beating the consensus expectation of 51.2, and reached the highest level since May 2021. While the two gauges have a somewhat different focus regarding companies surveyed, the mixed readings highlight the uncertain outlook for the Chinese economy during the second half of the year.
Commodity Markets
After two weeks of robust gains, crude oil experienced some volatility over the past five sessions, limiting the weekly upside. Still, despite a minor decline on Friday, the September Brent futures advanced by 0.8 per cent over the past week, settling at 85.00 dollars per barrel. Rising tensions in the Middle East and expectations of higher demand over the summer holidays contributed to the higher prices. Still, losses during the early stages of the week, as traders awaited the US inflation data, limited the weekly gains. The new week has seen further gains, with the contracts advancing by nearly one per cent in today’s trading.
European natural gas prices swung between sizeable daily gains and losses throughout the past week as concerns over global LNG supplies competed with weakening demand. Following a 1.1 per cent decline on Friday, the August TTF futures settled at 34.48 euros per MWh, half a per cent lower than a weak earlier. The contracts began today’s session in the black amid gains of around one per cent, but the positive momentum has since been lost and they are trading nearly two per cent below Friday’s close.
Softer demand weighed on coal prices last week. As previously highlighted, Shipfix’s cargo order data point towards weaker demand from buyers in India and China. The development contributed to a weekly decline of 1.4 per cent for the August Newcastle futures as they settled at 133.65 dollars per tonne on Friday. Weak demand also weighed on the benchmark futures for the European coal markets, with the contracts for delivery in Rotterdam next month shedding 4.7 per cent over the week and ending Friday’s session at 107.10 dollars per tonne.
After four weeks in the red, iron ore had a minor rebound last week and ended Friday’s session at 106.35 dollars per tonne. Still, despite last week’s 1.5 per cent gain, the August SGX futures remain more than twelve per cent below the levels seen during the second half of May. Today’s trading has seen the contracts advance by more than three per cent, supported by a robust reading for the Caixin manufacturing PMI.
The base metals had a week of mixed fortunes amid volatility for the US dollar and shifting concerns over demand and supply. The three-month copper futures listed on the LME recorded a weekly decline of 0.9 per cent as robust global supplies outweighed expectations of higher demand. The aluminium and nickel contracts saw gains of 0.4 per cent for the week. The zinc futures had a second week of robust gains, with pressure on global supplies contributing to a weekly advance of 3.3 per cent.
Despite solid gains on Thursday, the September wheat futures listed on the CBOT recorded another week of losses as the global supply situation remained favourable. However, compared to recent weeks, the losses were modest at 0.4 per cent amid mounting concerns over the size of the European harvest in the face of dry weather conditions. The corn futures for delivery in September dropped by 7.5 per cent over the past five trading sessions amid a good supply outlook and concerns over Chinese demand. The soybean contracts recorded a weekly loss of 1.7 per cent, with an upward revision of US inventories contributing to the decline.
Freight and Bunker Markets
The Baltic Dry Index began last week with two sessions of losses. However, improving sentiments in the capesize segment during the second half of the week translated into a weekly gain of 2.7 per cent for the headline index. While the largest vessels delivered a robust weekly performance, the mid-sized segments ended the week in negative territory. On the other hand, the smallest bulkers recorded a modest weekly gain.
The sub-index for the capesizes recorded a weekly gain of 9.6 per cent, despite facing headwinds during the week’s first two sessions. Improving demand in the Pacific basin and a limited decline in tonnage supply contributed to the past week’s solid performance. The gauge for the handysizes also recorded a weekly gain, albeit to a lesser extent. After modest gains during the early parts of the week amid a rebound in demand, the gauge remained unchanged on Thursday and Friday, as the recovery lost momentum, and ended the week 1.4 per cent higher. In contrast, the indicator for the panamaxes declined by 8.8 per cent last week as demand remained under pressure across the major basins. Despite some early gains, the sub-index for the supramaxes ended the week with a loss of 0.9 per cent as cargo order volumes came under pressure.
The Baltic Exchange’s wet freight indices also had a week of mixed fortunes. The clean and dirty tanker indices went in opposite directions, with the former delivering a weekly gain of 4.9 per cent and the latter shedding 4.6 per cent. The indicators for the gas carriers also saw considerable divergence over the past week. The gauge for the LNG tankers rose by 9.5 per cent, while the LPG index fell by 10.2 per cent.
Rising crude oil prices supported further gains for bunker fuels last week. The VLSFO and MGO recorded weekly gains of around 2.5 per cent in Singapore and 3.0 per cent in Houston. However, in Rotterdam, the two fuels diverged, with the VLSFO rising by 2.9 per cent over the past five sessions and the MGO edging up only marginally.
The View from the Shipfix Desk
As highlighted in “The Fix” last week, weekly cargo order volumes for steel loading in China remain robust despite some relative weakness during May. Hence, the continued strength of the Chinese steel exports suggests that calls for tariffs and other trade barriers will not diminish as production in other countries will face sustained competition from cheap imports. As Chinese steel rebar prices have dropped to the lowest levels since April 2020 and the country’s real estate sector remains weak, the country’s steel producers are likely to continue to seek business overseas.
The increase in Chinese exports of cheap steel has resulted in substantial headwinds for the Indian steel industry. Cargo order volumes for steel loading in Indian ports have come under significant pressure in recent months. While the year started strongly, in line with standard seasonal patterns, the downward trend has been steeper than usual. Average weekly volumes during June dropped to around 275,000 tonnes, compared to 560,000 tonnes a year ago. The 50 per cent decline in cargo order volumes indicates that Indian steel exports will not recover in the short term, and the country’s steel mills may have to focus on the domestic market.
Data Source: Shipfix