The Baltic Dry Index extended gains into a fourth week as the gauge for the capesizes continued to move higher. The indices for the mid and small-sized bulkers remained on downward trajectories and offset some of the gains for their larger siblings. Many commodities came under pressure as soft economic data weighed on the demand outlook.
By Ulf Bergman
Macro/Geopolitics
According to data published on Friday, the US economy added 142,000 jobs in August. The non-farm payroll was higher than the downwardly revised data for July but failed to match the consensus projection of 160.000. On the other hand, the unemployment rate for the world’s largest economy eased somewhat. The mixed readings tempered the expectations that the Federal Reserve could slash interest rates by as much as 50 basis points during next week’s gathering of the central bank’s rate-setters. As a result, the US dollar stabilised on Friday, but the dollar index nevertheless recorded a 0.5 per cent weekly decline.
Across the Pacific, the Chinese economy saw prices edging up last month, according to data released on Monday. While the year-on-year inflation rate in August fell somewhat short of expectations with a reading of 0.6 per cent, it was the seventh consecutive month of rising consumer prices. Still, inflation in the world’s second-largest economy may struggle to keep up in the coming months as supply issues amid heat and extensive rains pushed prices higher in August.
Commodity Markets
Crude oil prices dropped sharply over the past week as weak economic data raised concerns over the demand outlook. An announcement from OPEC+ that a planned increase in crude oil production would be postponed for two months did little to arrest the decline. The November Brent futures recorded a weekly drop of 7.6 per cent as they settled at 71.06 dollars per barrel on Friday, the lowest closing price since late 2021. The contracts initially staged a robust rebound in yesterday’s trading but have since retreated towards Friday’s close.
Despite some gains on Thursday and Friday amid mounting global competition for LNG cargoes, European natural gas prices fell significantly over the past week as high inventory levels weighed on demand. The front-month TTF futures recorded a weekly decline of 8.4 per cent as they settled at 36.48 euros per MWh on Friday. The positive momentum of the past two sessions has carried into the new week with gains of around two per cent in today’s trading.
Soft demand amid falling natural gas prices and a well-supplied market contributed to lower coal prices last week. The futures for delivery in Newcastle next month retreated by 2.9 per cent over the past week, settling at 141 dollars per tonne on Friday. The contracts for delivery in Rotterdam faced stiffer headwinds and recorded a weekly decline of 5.5 per cent, ending the week a shade below 115 dollars per tonne.
Concerns over the demand outlook amid weak economic data and extensive Chinese inventories contributed to significant losses for the iron ore futures listed on the SGX over the past week. The October contracts ended Friday’s session at 91.70 dollars per tonne, following a weekly drop of 9.2 per cent. In today’s trading, the contracts initially dropped below 90 dollars per tonne, but they have since recovered and are trading around half a per cent above Friday’s settlement price.
Weak economic data weighed on the base metals over the past five trading sessions. A limited demand recovery tempered the losses for copper, but the three-month futures listed on the LME still recorded a weekly decline of 2.6 per cent. The aluminium contracts shed 4.3 per cent over the week, while the zinc and nickel futures dropped by 6.2 and 5.2 per cent, respectively.
Despite losses of more than one per cent on Friday, the grain and oilseed futures listed on the CBOT were among the minority of commodity contracts recording weekly gains. Some concerns that adverse weather conditions in different parts of the world would reduce harvests supported prices during the week’s first half but eased during the final two sessions. The December wheat contracts rose by 2.8 per cent last week, while the corn futures advanced by 1.3 per cent. The weekly gains for the November soybean futures were more modest at 0.5 per cent.
Freight and Bunker Markets
The Baltic Dry Index extended its run of weekly gains into a fourth one during the past week with an increase of 7.0 per cent. Again, the capesizes delivered the positive momentum, while the mid and small-sized segments tempered the gain for the headline index.
The gauge for the largest vessels spent four out of the past five sessions in the black amid pressure on tonnage supply and recorded a weekly gain of 8.3 per cent. Weak demand across the main basins saw the indicators for the panamaxes, the supramaxes and the handysizes retreating for much of the week. The index for the panamaxes fell by 1.7 per cent, while the latter two shed 3.5 and 2.7 per cent, respectively.
The Baltic Exchange’s wet freight indices ended the past week in the red amid weak demand. The gauge for the dirty tankers benefitted from some limited gains on Thursday and Friday but delivered a weekly loss of 1.2 per cent. The indicator for the clean tankers shed 4.7 per cent over the past five sessions, while the gauges for the LNG and LPG carriers fell by 3.3 and 7.5 per cent, respectively.
The losses in the crude oil markets weighed on bunker prices last week. While losses for the VLSFO were limited to 0.9 per cent for the week in Singapore, the fuel shed more than 5.1 per cent in Houston and Rotterdam. For the MGO, developments were more homogeneous across the three maritime hubs. In Houston, the fuel declined by 4.2 per cent, while weekly losses approached five per cent in Rotterdam and Singapore.
The View from the Shipfix Desk
The cargo ordering activities associated with the US grain and oilseed harvests are currently in full swing. Weekly spot volumes for cargoes loading in the US Gulf began to trend higher at the beginning of the third quarter and reached a high of 3.7 million tonnes in the middle of August. However, since then, the demand for seaborne transportation of agricultural commodities loading in the southern US ports has faced headwinds. Still, last week saw a rebound, with volumes rising by nearly 40 per cent week-on-week.
The increasing demand during the past week saw a renewed interest in the panamaxes. The mid-sized vessels have faced headwinds in recent weeks, but last week saw cargo order volumes jump nearly three-fold. The handysizes and handymaxes also experienced improving demand, but to a lesser extent at around 31 per cent. For the supramaxes and the ultramaxes, demand remained broadly in line with the previous week. However, compared to the demand situation during the middle of August, only the panamaxes were enjoying better circumstances.
If last year’s seasonal pattern for the US grain and oilseed trade repeats itself, the coming weeks could see cargo order volumes retreating temporarily. However, October and November should see robust weekly volumes. The panamaxes are likely to see an improving demand situation should cargo ordering activities pick up in line with recent years.
As discussed in “The Fix” last week, Chinese demand for US agricultural commodities has come under pressure, with grains and oilseeds from the US Gulf increasingly heading for less distant shores. Hence, decreasing tonne-mile demand in the trade could temper any gains for freight rates should order volumes rise in the coming months.
Data Source: Shipfix