The Baltic Dry Index rebounded last week as all segments stayed out of the red. On the other hand, the commodities delivered mixed performances. Lower US interest rates and a weaker dollar provided support for crude oil and many base metals, while iron ore and European natural gas faced volatility throughout the week.
By Ulf Bergman
Macro/Geopolitics
The new week has begun with data releases pointing towards a deteriorating outlook for the European economy, adding to existing concerns over global growth rates and demand. The HCOB Flash Eurozone Composite PMI declined for a fourth consecutive month in September, dropping into contraction territory. Markets had expected the gauge to retreat slightly from the previous month but remain in expansion territory. However, continued headwinds in the German manufacturing sector and weakness in the French services sector, as the positive effects of the Olympics unwound, contributed to the PMI dropping to 48.9. The weaker-than-expected data may force the European Central Bank to embark on a more aggressive monetary easing than anticipated, putting pressure on the euro.
Commodity Markets
Despite a half a per cent loss on Friday, crude oil recorded gains for the past week as rising tensions in the Middle East and lower interest rates in the US supported prices. The November Brent futures delivered a 4.0 per cent weekly gain, settling at 74.49 dollars per barrel on Friday. The new week has seen the contracts remaining near Friday’s closing price.
European natural gas prices remained volatile last week, with an erroneous report regarding Azerbaijani gas exports through Ukraine contributing to significant swings during the final two sessions. The front-month TTF futures ended Friday’s session at 34.44 euros per MWh, 3.4 per cent lower than a week earlier. The contracts have begun the week with robust gains and are trading approximately four per cent above Friday’s settlement.
The benchmark futures for the European and Asian coal markets faced diverging fortunes over the past week. The October contracts for delivery in Rotterdam declined by 1.1 per cent, a third straight week in the red, and ended Friday’s session at 112.35, as losses in the natural gas market weighed on demand and prices. In contrast, the futures for delivery in the Australian port of Newcastle recorded a weekly gain of 3.3 per cent as they ended Friday’s trading at 139 dollars per tonne, supported by concerns over Chinese domestic production.
Iron ore swung between daily gains and losses throughout last week as concerns over the demand outlook and mounting expectations that the Chinese leadership will provide additional stimulus for the economy competed for traders’ attention. The SGX October futures ended the week at 91.67 dollars per tonne, 1.2 per cent lower than the previous Friday. The contracts have continued to decline in today’s session and are trading below 90 dollars per tonne amid a loss of around two per cent.
Despite losses for most base metals on Friday, all but zinc delivered weekly gains, supported by a weaker dollar. The three-month copper futures listed on the LME rose by 1.8 per cent over the week, while the aluminium and nickel contracts gained 0.6 and 3.5 per cent, respectively. On the other hand, the zinc futures shed 1.1 per cent over the past five sessions.
Following several weeks in the black, the December wheat and corn futures listed on the CBOT declined last week as export data weighed on prices. The wheat contracts recorded a weekly loss of 4.4 per cent, while the corn futures shed 2.8 per cent. On the other hand, the November soybean futures had a third week of modest gains amid a 0.6 per cent increase.
Freight and Bunker Markets
All of the Baltic Exchange’s dry bulk indices stayed out of the red over the past week. The headline Baltic Dry Index recorded a weekly gain of 4.6 per cent, with much of the gains originating from the panamaxes and the capesizes.
The freight gauge for the panamaxes delivered last week’s most robust performance as it advanced by 7.7 per cent. A drop in market lead times across the major basins and a decline in available vessels in the Indian Ocean and the Pacific contributed to the segment’s robust week. The sub-index for the capesizes recorded a weekly gain of 4.6 per cent despite losing ground during a majority of the sessions. A surge of 7.6 per cent on Thursday, supported by rising cargo ordering activities in the Atlantic, was chiefly responsible for the past week’s positive performance. The index for the supramaxes advanced by 2.0 per cent over the week, with declining market lead times globally and lower tonnage supply in the Indian Ocean and Pacific offsetting weak cargo order volumes. The indicator for the handysizes ended the week unchanged amid limited moves.
The Baltic Exchange’s wet freight indices had a more mixed week than the dry bulk sector. The dirty tanker index ended the week 1.2 per cent higher than the previous Friday. At the same time, the indicator for the clean trade retreated by 0.6 as losses on Thursday and Friday offset earlier gains. The gauge for the LNG carriers 2.7 rose by 2.6 per cent over the week. However, the indicator for the LPG tankers delivered the week’s most significant performance amid a 41.0 per cent drop.
The trading in bunker fuels ended the week with gains across the board on Friday, supported by earlier gains in the crude oil market. While the past five trading sessions saw both daily gains and losses, the aggregates for the week were firmly in the black. The VLSFO rose by 4.4 per cent in Houston, with Singapore and Rotterdam trailing at 2.8 and 2.2 per cent, respectively. The MGO generally recorded more limited weekly gains than the VLSFO. Again, Houston led the way higher with a weekly gain of 3.2 per cent, while the fuel advanced by 2.3 per cent in Rotterdam and 1.1 per cent in Singapore.
The View from the Shipfix Desk
After trending lower between the middle of August and the middle of September, the benchmark futures for the Asian coal markets gained more than four per cent last week amid suggestions that Chinese domestic production could face headwinds amid adverse weather conditions and safety inspections. Still, despite last week’s gains, the Newcastle futures for delivery next month ended Friday’s trading session more than 20 per cent below the level recorded a year earlier.
As discussed in “The Fix” last week, global spot cargo order volumes for coal have been under pressure during the past months, with recent weekly volumes pointing towards continued weak demand for seaborne transportation of the commodity. Among the contributing factors to the unseasonal weakness is the soft demand from the Chinese trade.
While demand showed some signs of recovery at the end of August, the development proved short-lived, with weekly cargo order volumes for discharge in China on a downward trend since then. The aggregate demand for August was around 41 per cent lower than a year ago, and September appears to be on track for a similar fate. While China is sourcing an increasing portion of its coal imports from Mongolia, weak growth and greater use of renewable sources for energy production contribute to the weaker demand for seaborne transportation of coal.
The current downward trend for weekly cargo order volumes for coal bound for China is at odds with developments a year ago. While there was some volatility in the weekly cargo order volumes, there was an upward trend during the second half of last year’s third quarter. Hence, given the current weakness, the upside for the Newcastle futures may be limited.
Data Source: Shipfix