The Baltic Dry Index delivered a solid gain on Thursday amid gains for all segments. On the other hand, the commodities had a mixed session. Iron ore was one of the better performers, supported by a weaker dollar and hopes that the Chinese leadership will introduce more economic support measures.
By Ulf Bergman
Macro/Geopolitics
The Federal Reserve delivered on Wednesday what the markets wanted but did not really dare to hope for. The US central bank cut its key interest rate by 50 basis points, beginning the easing cycle with an outsized reduction. Still, the Fed’s Chair was keen to point out that cuts of half a percentage point are not the new normal. Additionally, he suggested that neutral interest rates are higher than current market projections. Hence, markets were left with new questions about how the easing cycle will evolve. Still, according to current projections, the Fed funds rate will be lowered by another 200 basis points before the end of next year.
The US dollar has experienced some volatility in the wake of the interest cut as investors digested the statements from the Federal Reserves Chair. Still, the US dollar index ended yesterday’s session at the lowest level in around three weeks, following a daily decline of a third of a per cent. The US currency could face further pressure in the coming months as other central banks may opt to be less aggressive in their monetary easing, a development that could be beneficial for the commodities and freight markets.
Commodity Markets
The lower US interest rate supported crude oil prices during yesterday’s session as it might prompt higher demand. In addition, the rising tensions in the Middle East raised renewed concerns about supply disruptions. As a result, the November Brent futures recorded a daily gain of 1.7 per cent as they settled at 74.88 dollars per barrel, the highest closing price in over two weeks. The contracts initially remained close to yesterday’s final price in today’s trading but have since retreated by around half a per cent. .
European natural gas prices dropped sharply on an erroneous report that Azerbaijan would continue to transit gas, possibly of Russian origin, through Ukraine to Europe in the coming year. In addition, rising temperatures in the Northwestern parts of the continent weighed on demand. The front-month month TTF futures ended Thursday’s session at 33.08 euros per MWh, the lowest closing price in four months, following a loss of 6. 1 per cent for the day. After a retraction of yesterday’s report, the contracts have recovered significant parts of yesterday’s losses in today’s session and are trading approximately five per cent above Thursday’s close.
The futures for the European and Asian coal markets experienced diverging fortunes during yesterday’s session. The contracts for delivery in Rotterdam next month faced headwinds amid lower European natural gas prices and soft demand, ending the day at 110.80 dollars per tonne amid a decline of 1.6 per cent. In contrast, the front-month Newcastle futures rose by 1.1 per cent, supported by a weaker dollar, and ended the day at 136.75 dollars per tonne.
During yesterday's session, the iron ore futures listed on the SGX continued their recent swings between sizeable daily gains and losses just above the 90-dollar level as traders weighed weak economic data against hopes of more stimulus for the Chinese economy. The October contracts advanced by 2.1 per cent, settling at 92.67 dollars per tonne. In line with the recent narrative, the contracts have retreated by around one per cent in today’s trading.
The weaker dollar and, by extension, hopes of a better demand outlook supported the base metals during Thursday’s trading activities. The three-month copper and zinc futures listed on the LME ended the day 1.2 and 1.6 per cent higher, respectively. The gains for aluminium and nickel were more modest, with the contracts for the former edging up only marginally and the latter advancing by 0.6 per cent.
CBOT’s grain and oilseed futures for delivery during the year's final months faced headwinds yesterday, albeit to varying degrees. The wheat and corn December futures retreated by 1.8 and 1.7 per cent, respectively, with export data weighing on the prices. On the other hand, the losses for the November soybean contracts were minimal at 0.1 per cent.
Freight and Bunker Markets
After several days of mixed fortunes, all of the Baltic Exchange’s dry bulk indices ended the session in the black on Thursday. The headline Baltic Dry Index recorded a daily gain of 4.6 per cent as the capesizes staged a rebound.
The freight indicator for the largest vessels rose by 7.6 per cent as market lead times in the Atlantic continued to retreat from recent highs and remained low in the Pacific. The index for the panamaxes recorded a ninth consecutive session of gains amid an increase of 1.7 per cent for the day, benefitting from softening tonnage supply. The indices for the smaller segments recorded more modest daily gains, with the supramaxes advancing by half a per cent and the handysizes gaining only marginally.
In line with the recent trend, the indicator for the LPG tankers was the only one of the Baltic Exchange’s wet indices that recorded a significant move yesterday amid a decline of 16.2 per cent. The gauge for the dirty tanker rose by 0.9 per cent, while the equivalent for their clean relatives shed 0.9 per cent. The index for the LNG carriers remained unchanged for a second consecutive day.
Higher crude oil prices generally supported the trading in bunker fuels during yesterday’s session. Prices rose in Singapore and Rotterdam, while the day was mixed in Houston. The VLSFO rose by 1.7 per cent in Singapore and 1.6 per cent in Rotterdam while retreating by a marginal 0.2 per cent in Houston. For the MGO, Rotterdam led the way higher amid a daily gain of 1.8 per cent, with Singapore and Houston trailing at 1.1 and 0,5 per cent, respectively.
The View from the Shipfix Desk
As discussed in Wednesday’s edition of “The Fix”, global demand for seaborne transportation has been under renewed pressure in recent weeks after showing tentative signs of a recovery in August. The development has contributed to the front-month Newcastle futures trading more than ten per cent below the levels seen in the middle of August.
Weaker demand for spot deliveries of coal to Indian ports has contributed to the global headwinds, with cargo order volumes for shipments to India nearly a third lower in August than a year ago. While the current week looks set to improve on the volumes recorded during the preceding one, the aggregate for September remains on course for a significant year-on-year decline.
While Indonesia remains dominant in the Indian seaborne coal trade, the island nation has faced the stiffest headwind in recent months. At the same time, demand for transportation of imports from Australia, South Africa and the US has remained stable.
Demand for transportation of the dirtiest of fossil fuels to India usually sees a seasonal rebound during the third and fourth quarters of the year. Still, this year, the development has yet to materialise. Hence, as India is one of the world’s leading importers of the commodity, the case for a significant coal price recovery remains weak.
Data Source: Shipfix