The dry bulk freight market remained a tale of two parts last week, with the capesizes retreating and the smaller segments advancing. Still, the offsets from the mid and small-sized vessels were insufficient, and the Baltic Dry Index declined for a second consecutive week. Among the commodities, iron ore and base metals were among the past week’s losers amid concerns over Chinese demand.
By Ulf Bergman
Macro/Geopolitics
Last week ended with the release of some mixed US inflation and consumer data for June. The core PCE price index rose marginally more than expected compared to May, and it was the same for the year-on-year comparison. Still, the 2.6 per cent increase in prices over the past year and the slight acceleration from May have not altered the general consensus that the Federal Reserve will commence cutting interest rates in September.
The growth in US personal income and spending decelerated last month compared to the month before, adding further evidence that the world’s largest economy is slowing down amid high interest rates. While personal spending grew in line with expectations, incomes expanded by less than expected.
In the week ahead, Chinese and US PMI data will be released, providing further insights into the state of the world’s two largest economies. The Chinese manufacturing PMI, which will be published on Wednesday, is widely expected to show further contraction and extend a decline in factory activities into a third month.
Commodity Markets
Crude oil prices swung between daily gains and losses throughout the past week as mounting optimism over a possible ceasefire deal in Gaza and lower-than-expected US inventories provided opposing forces. The September Brent futures declined by 1.5 per cent on Friday, ending the week at 81.13 dollars per barrel, and recorded a weekly decline of 1.8 per cent. The contracts began the new week with gains, as tensions in the Middle East yet again are on the rise, but have since retreated towards Friday’s close.
European natural gas prices advanced over the past week but remained highly volatile as low demand competed with mounting global demand for LNG shipments. The front-month TTF futures recorded a weekly gain of 0.9 per cent as they settled at 32.48 euros per MWh on Friday. Today’s trading has seen the contracts extending on Friday’s gains amid an increase of around three per cent.
The benchmark futures for the Asian and European coal markets delivered diverging narratives last week. The contracts for delivery in Newcastle next month ended Friday’s session at 139.25 dollars per tonne, marginally higher than a week earlier, amid mostly limited price movements throughout the week. In contrast, the August futures for delivery in Rotterdam gained 5.0 per cent over the past week, settling at 114.05 dollars per tonne on Friday. The European prices were supported by rising natural gas prices and concerns that La Nina could disrupt supplies.
After dipping below the symbolic 100-dollar level on Thursday, the August iron ore listed on the SGX recovered on Friday amid a 2.3 per cent gain. Still, Friday’s closing price of 102.17 dollars per tonne was 2.2 per cent lower than a week earlier, as concerns over Chinese demand continued to weigh on prices. The new week has seen the contracts resume their slide amid losses of around a quarter of a per cent.
Concerns over the Chinese demand outlook also weighed on the base metals last week. In addition, well-supplied markets contributed to last week’s headwinds. The three-month LME copper futures recorded a weekly loss of 2.1 per cent, while the aluminium and nickel contracts shed nearly three per cent over the period. The zinc futures delivered the past week’s weakest performance amid a 3.9 per cent drop.
Reports of even better supplies than previously envisaged weighed heavily on the grain and oilseed futures listed on the CBOT during last week’s final trading session, with losses approaching three per cent. Still, despite the sizeable losses on Friday, the September contracts delivered diverging weekly performances. The September wheat futures recorded a weekly decline of 3.5 per cent. In contrast, the corn and soybean contracts increased by 1.0 and 0.5 per cent, respectively, over the week, following significant gains on Monday.
Freight and Bunker Markets
The Baltic Dry Index delivered a second consecutive week of losses amid a 4.9 per cent decline, with the capesizes continuing to weigh on the headline freight indicator. Also, for a third straight week, the mid and small-sized vessel segments recorded limited gains and offsets for the losses in the largest segment.
The indicator for the capesizes dropped by 12.1 per cent last week as demand in the major basins remained weak, with the Indian Ocean and the Pacific especially affected. The gauge for the panamaxes recorded a weekly gain of 4.6 per cent, supported by a demand recovery. The indices for the supramaxes and the handysizes recorded limited daily moves, summing up to weekly gains of nearly one per cent.
The Baltic Exchange’s indices for the wet sector faced a week of headwinds, with all gauges ending in the red. The indicator for the dirty tankers dropped by 3.1 per cent over the past five sessions, while their clean sibling fared somewhat better with a weekly decline of 1.0 per cent. The spot index for the LNG carriers recorded a weekly loss of 2.2 per cent, while the gauge for the LPG tanker retreated by 1.2 per cent.
While Friday’s session was mixed for the bunker fuels, the VLSFO and MGO declined over the past week in the world’s leading bunkering ports. The former fuel retreated by 2.1 per cent in Singapore and by 2.9 per cent in Rotterdam, but Houston recorded the most significant weekly loss amid a 4.4 decline. The MGO faced less stiff headwinds, with the fuel shedding around 1.5 per cent in Singapore and Houston, while Rotterdam recorded a 2.6 per cent drop.
The View from the Shipfix Desk
The capesizes were last week’s laggards among the dry bulk segments, with the vessels’ freight index falling by more than twelve per cent. The decline, in combination with the base effect, saw the gauge moving from the top to the bottom for the year-on-year performance among the dry bulk freight indices. While still impressive, the capesize index ended last week around 50 per cent above the level recorded a year ago, but it is still a far cry from the nearly 100 per cent seen recently.
As mentioned in “The Fix” last week, there have been some tentative signs of a recovery in cargo order volumes for the capesizes in recent weeks. This has been particularly visible in the Indian Ocean and the Atlantic. However, last week proved to be a disappointment, with aggregate global cargo order volumes dropping to a two-month low as demand faced headwinds across all basins, but especially in the Indian Ocean.
As the capesize trade is focused on a limited number of cargo types, demand for seaborne transportation onboard the largest vessels can be volatile as the appetite for those commodities shifts. While coal prices have recovered somewhat during the second half of July, they remain depressed compared to the levels seen during much of April and May. The lower prices reflect weaker demand in a well-supplied market. The softer demand for the dirtiest of fossil fuels has contributed to the headwinds for the capesizes.
Apart from an increase during the weeks in the middle of July, cargo order volumes for coal loading globally onto capesizes have been trending lower for much of the second quarter. On the other hand, the cargo order volumes for non-coal shipments have seen a minor rebound since the end of May, offsetting some of the weakness associated with the coal trade.
While weekly cargo order volumes for coal and other commodities have fallen below their long-term averages, coal has seen the most significant decline. Last week, global spot cargo order volumes for coal loading globally were around 35 per cent below the average for the past year and a half. At the same time, total cargo order volumes were around twenty per cent lower than the long-term average. Hence, a rebound in demand for seaborne transportation of coal is a crucial ingredient for a capesize recovery.
Data Source: Shipfix