Despite robust gains for the panamax freight indicator, the Baltic Dry Index ended a run of weekly gains with a loss as the capesizes faced significant headwinds. The commodities also had a week of mixed fortunes, with grains and metals among the winners. On the other hand, soft demand and weak cargo order volumes weighed on coal prices.
By Ulf Bergman
Another batch of disappointing Chinese data saw the light of day during the past weekend, further clouding the outlook for the world’s second-largest economy and limiting the feasibility of the year’s official growth target. Industrial production rose by 4.5 per cent in August compared to the same period last year, below the growth of 5.1 per cent in July and the consensus of 4.8 per cent. Retail sales also failed to meet expectations and fell short of the previous month’s reading as they grew by 2.1 per cent last month, highlighting continued sluggish domestic demand in China.
Additionally, the National Bureau of Statistics of China reported that investments in fixed assets year-to-data fell somewhat short of the consensus projection at 3.4 per cent and that unemployment edged up to 5.3 per cent last month. Saturday’s disappointing data releases have raised concerns that Chinese growth will fall short of the five per cent target, fuelling expectations that the country’s leadership will introduce more measures to stimulate growth. However, time might be running out with just over three months left of the year.
Commodity Markets
Despite a minor retreat on Friday, crude oil prices recorded a gain last week for the first time since the beginning of August. Still, the increase for the past five sessions was modest at 0.8 per cent as the November Brent futures settled at 71.61 dollars per barrel on Friday. Mounting expectations among traders that the Federal Reserve could cut interest rates by 50 basis points this week contributed to the improving sentiments. The contracts have gained in yesterday’s trading as the weak Chinese economic data and a resumption of refining activities in the US Gulf area have only marginally offset the bullish expectations associated with a US interest rate cut.
European natural gas prices declined for a second week as the supply outlook improved and inventories remained high. Despite a 1.3 per cent gain on Friday, the front-month TTF futures recorded a weekly decline of 2.3 per cent as they settled at 35.65 euros per MWh at the end of the week. The contracts have come under renewed pressure in today’s trading amid milder weather conditions across parts of the continent, with losses of around four per cent.
Lower natural gas prices in Europe and Asia and weak economic data contributed to declining coal prices last week. The soft demand is also reflected in low cargo order volumes for coal loading globally. The Newcastle futures for delivery next month recorded a weekly decline of 4.5 per cent, ending Friday’s session at 134.60 dollars per tonne. The contracts for delivery in Rotterdam retreated by 1.1 per cent over the week, ending at 113.65 dollars per tonne. Both contracts have begun the new week in the red amid significant losses in today’s trading.
After several weeks of losses, iron ore prices saw a minor recovery over the past five sessions. However, headwinds on Friday reduced the weekly gain for the SGX October futures to 1.2 per cent. The contracts ended the week at 92.80 dollars per tonne as hopes of more Chinese stimulus for the economy supported prices. Still, the weekend’s disappointing Chinese data releases have weighed on prices in today’s session, with the contracts trading more than one per cent below Friday’s close.
A weaker dollar during the second half of last week contributed to gains for the base metals trading on the LME. The three-month copper futures recorded a weekly gain of 3.5 per cent, while the aluminium and zinc contracts surged by 5.5 and 6.9 per cent, respectively. On the other hand, the weekly gains for the nickel contracts were limited to a third of a per cent.
A solid end to the week contributed to weekly gains for wheat and corn on the CBOT. The December wheat futures rose by 4.9 per cent over the past five sessions amid increasing concerns over global supplies following reports that a missile had hit a vessel carrying grains in the Black Sea. The December corn contracts rose by 1.7 per cent over the week amid robust demand. On the other hand, the November soybean futures ended Friday’s session broadly unchanged for the week.
Freight and Bunker Markets
After four weeks of gains, the Baltic Dry Index recorded a modest loss over the past five sessions. Still, the headline index's weekly decline of 2.6 per cent camouflaged diverging fortunes for the two largest segments.
The sub-index for the capesizes dropped by 8.0 per cent over the past week as rising tonnage supply offset a recovery in spot order volumes. On the other hand, the gauge for the past months’ underperformers, the panamaxes, recorded a weekly surge of 10.4 per cent amid a shift in demand towards tonnage for more immediate delivery. The indicator for the supramaxes edged up by a third of a per cent over the week, while the gauge for the handysizes shed 2.3 per cent amid soft demand in the Indian and Pacific Oceans.
The Baltic Exchange’s wet freight indices also displayed diverging fortunes over the past week. The index for the dirty tankers rose 1.5 per cent, with the gains recorded during the sessions on Monday and Tuesday. The gauge for the clean tankers advanced throughout the week, recording a weekly gain of 8.0 per cent. On the other hand, the indicators for the liquified gas tankers ended the past week in the red. The LPG index dropped by 22.0 per cent, while the LNG freight indicator shed 2.1 per cent over the week.
Despite minor gains for most bunker fuels on Friday, the past week’s trading delivered significant losses across the world’s leading maritime hubs. The VLSFO saw losses in excess of 4.5 per cent for the week in Rotterdam and Houston, while the weekly decline reached 7.4 per cent in Singapore. The MGO faced somewhat less severe headwinds and declined by around three per cent in Singapore and Rotterdam, while Houston delivered a weekly drop of 4.6 per cent.
The View from the Shipfix Desk
As discussed in “The Fix” last week, the Baltic Exchange’s supramax index has faced some headwinds recently. Despite edging up marginally over the past week, the gauge was more than four per cent lower than during the final week of August. While the indicator was around nine per cent higher than a year ago on Friday, the current weakness is at odds with seasonal behaviours in recent years.
While global cargo order volumes for the supramaxes have shown some signs of stabilising after a long period of decline, US exports to China and the Far East onboard vessels in the segment are currently under pressure. In contrast to last year, cargo order volumes for the trade have been trending lower over the past month, following a brief spike in early August. During the same period last year, the demand surge during August was more pronounced, and in the aftermath, volumes remained on a robust upward trajectory. As a result, aggregate volumes in August were 42 per cent lower than a year ago.
The downward trend during the past few weeks suggests that the spot trade's cargo order volumes will remain considerably lower than a year ago. During the first two weeks of September, the total cargo order volumes were nearly 50 per cent lower than they were a year ago. Hence, unless a seasonal recovery materialises in the near term, the lack of demand for seaborne transportation of US exports to China and the Far East onboard supramaxes will continue to weigh on freight rates in the segment.
Data Source: Shipfix