After five weeks of gains, the Baltic Dry Index declined by more than four per cent over the past five sessions, with all vessel segments contributing to the headwinds. Among the commodities, concerns over potential supply disruptions contributed to weekly gains in many cases.
By Ulf Bergman
Macro/Geopolitics
The past week ended with the release of US labour market data that, charitably, can be described as mixed. While the non-farm payroll numbers for June exceeded market expectations, they still fell below the previous month’s reading. However, the headline-grabbing developments were significant downward revisions of the data for May and April, indicating that the US labour market is less robust than previously envisaged. Beyond the non-farm payroll data, the US unemployment rate rose to 4.1 per cent, the highest since November 2021. The suggestion that the US labour market faces increasing headwinds raised hopes that the Federal Reserve will begin cutting interest rates in September, contributing to the dollar losing ground on Friday.
In the week ahead, US inflation data will be released on Thursday, providing additional clues about the timing of the first US interest rate cut in this cycle. Chinese inflation data will be released on Wednesday, followed by trade data on Friday, providing additional insights into the state of the world’s second-largest economy.
Commodity Markets
Despite a 1.0 per cent loss on Friday in the wake of the mixed US labour data, crude oil advanced over the past week, fuelled by concerns that rising tensions in the Middle East will affect global supplies. In addition, a larger-than-expected drop in US crude oil inventories contributed to an improved demand outlook. The September Brent futures settled at 86.54 dollars per barrel at the end of last week, 1.8 per cent above the previous Friday’s close. However, Friday’s negative momentum has carried into the new week, with losses of around half a per cent so far in today’s trading.
The European natural gas market endured another week of volatility as lower demand on the continent competed with long-term concerns over global supplies. Eventually, the narrative of lower demand won, and the contracts recorded a weekly loss of 4.1 per cent as they settled at 33.07 euros per MWh on Friday. Today’s trading began in the black amid gains of nearly one per cent, but the contracts have since retreated towards Friday’s close.
The coal markets also experienced some volatility last week as weaker demand and temporary supply disruptions provided diverging forces. The August futures for delivery in the port of Newcastle gained 2.8 per cent over the past week, ending Friday’s session at 137.45 dollars per tonne, as torrential rains in Indonesia and a fire in an Australian mine threatened to weigh on global supplies. While the contracts for delivery next month in Rotterdam ended the week broadly unchanged at 107.05 dollars per tonne, they nevertheless experienced some significant daily moves fuelled by volatile natural gas prices.
The front-month iron ore futures listed on the SGX delivered a second week of modest gains as investors speculated that the upcoming Third Plenum in China will adopt further stimulus for the world’s second-largest economy. Still, the weekly advance was significantly reduced by a 4.7 per cent drop on Friday. The contracts ended Friday’s session at 108.15 dollars per tonne, 1.8 per cent above the closing price a week earlier.
The base metals ended the past week in the black, supported by a weaker dollar and hopes that Chinese demand will improve. The three-month copper futures listed on the LME led the way higher amid a weekly advance of 3.6 per cent, with zinc following with a 2.2 per cent increase. For aluminium and zinc, the weekly gains were more modest and below half a per cent.
After several weeks of declining prices, the grain and oilseed futures listed on the CBOT advanced over the past four trading sessions. The September wheat futures recorded a weekly gain of 3.0 per cent amid lingering concerns about the size of the Russian harvest following frost earlier in the growing season. The soybean contracts advanced by 2.4 per cent amid robust demand. The corn futures for delivery in September recorded a modest weekly gain of 0.7 per cent but remained close to the recent four-year low amid abundant supplies.
Freight and Bunker Markets
The Baltic Dry Index ended a five-week run in the black amid a weekly decline of 4.1 per cent. The change in fortunes came as the capesizes slipped into the red and could not offset the continued weakness in the smaller segments.
The sub-index for the largest vessels delivered a weekly decline of 3.0 per cent as losses during the second half offset robust gains on Monday and Tuesday. The turnaround came as demand in the Pacific and Indian Oceans showed weakness as the week progressed. The gauge for the panamaxes recorded a third consecutive week in the red amid a loss of 7.3 per cent, with cargo order volumes remaining subdued and tonnage supply rising. The indicator for the supramaxes fell by 3.6 per cent as rising vessel availability more than offset a limited increase in cargo order volumes. The index for the handysizes shed 2.8 per cent over the week amid downward pressure on demand across all major basins.
Most of the Baltic Exchange’s wet freight indices ended the past week in red, with the exception of the gauge for the LNG carriers. The gauges for the clean and dirty tankers shed 1.4 and 4.2 per cent, respectively, while the indicator for the LPG carriers delivered the week’s worst performance with an 8.7 per cent decline. On the other hand, the LNG tankers saw their index advance by 1.9 per cent amid two days of limited gains.
The bunker fuels advanced for a fourth week amid rising crude oil prices. In Singapore, the VLSFO recorded a weekly advance of 1.9 per cent, ending Friday’s session at the highest since the beginning of May. The fuel recorded weekly gains of 0.4 per cent in Houston and 1.6 per cent in Rotterdam. For the MGO, only Houston delivered a sizeable weekly gain and ended Friday’s session 3.4 per cent above the previous week’s close. The strong performance in the US port saw Friday’s trading ending at the highest levels since the middle of April. In Rotterdam and Singapore, the weekly gains for the MGO were marginal, with losses on Thursday weighing on the weekly performances.
The View from the Shipfix Desk
Nickel prices have displayed a similar pattern to the other base metals during the year’s first half. The three-month futures listed on the LME peaked during the second half of May after a gain of around thirty per cent since the end of last year. The advance was fuelled by optimism over the outlook for Chinese demand and some concerns over global supplies. However, the futures have come under pressure and have shed nearly twenty per cent over the past month and a half. Despite disruptions to mining output in New Caledonia, one of the world’s leading suppliers, amid extensive civil unrest, the nickel market has become oversupplied. Inventory levels are expected to reach a four-year high this year, which has weighed heavily on prices in recent weeks.
Cargo order volumes for nickel ore and concentrates loading globally have been trending higher for much of the past eighteen months. While the beginning of this year saw demand for seaborne transportation coming under significant pressure, cargo order volumes recovered during the latter parts of the first quarter. Monthly volumes in March and April were around two million tonnes, with a majority of the cargoes destined for ports in China. Given the time lag between cargo ordering and discharge, the robust volumes during the middle of the year's first half are likely to have contributed to the recent headwinds for nickel prices.
However, over the past two months, weekly cargo order volumes for nickel have decreased substantially, with a near-total absence of demand for seaborne transportation from New Caledonia contributing to the decline. Cargo ordering activities in the seaborne nickel trade usually are not affected by any seasonal headwinds during the summer in the Northern Hemisphere, and, hence, the decline is more likely a reflection of an oversupplied market. While nickel inventories are likely to remain high, the decline in demand for seaborne transportation of ore and concentrates should limit inventory growth and stabilise prices in the short to medium term.
Data Source: Shipfix