The capesizes propelled the Baltic Dry Index higher last week, while the panamaxes gave up some of the gains from the preceding two weeks. Among the commodities, iron ore gained significant ground following last week’s Chinese announcements regarding additional support for the world’s second-largest economy. On the other hand, crude oil went against the general flow as expectations of higher Saudi Arabian exports weighed on prices.
By Ulf Bergman
Macro/Geopolitics
While last week’s news that China will provide additional monetary and fiscal stimulus for the world’s second-largest economy set many markets ablaze, today’s releases of Chinese PMI data delivered sobering readings. Both the official and Caixin’s Purchasing Managers’ Index for the country’s manufacturing sector pointed towards a contraction over the past month. The PMIs for the services sector stayed out of the contraction territory, but only just. On the one hand, it can be argued that the PMI data is of limited relevance, given that the data were collected prior to last week’s announcements of additional stimulus. On the other hand, the weak data highlight the need for prompt implementation of initiatives.
Commodity Markets
Crude oil experienced some volatility over the course of the past week, with an improving Chinese demand outlook, expectations of higher Saudi Arabian exports and mounting tensions in the Middle East contributing to the changeable conditions. Despite a half per cent gain on Friday, the November Brent futures recorded a weekly decline of 3.4 per cent as they settled at 71.98 dollars per tonne. The contracts initially continued to move higher in today’s session amid gains of around half a per cent, but they have since reversed course and are trading around half a per cent below Friday’s close.
Concerns over supplies amid geopolitical tensions and higher demand as temperatures looked set to head south in Europe fuelled significant gains for natural gas last week. The front-month TTF futures settled at 38.11 euros per MWh on Friday, a three-week high, following a weekly gain of 10.7 per cent. The November contracts have gained around one per cent in today's trading.
Colder weather in parts of the Northern Hemisphere and rising natural gas prices amid mounting geopolitical tensions contributed to higher coal prices rising last week. The futures for delivery in the port of Newcastle in October rose by 5.2 per cent, ending the week at 146.25 dollars per tonne. The Rotterdam contracts ended Friday’s session at 118.25 dollars per tonne, following a 5.3 per cent increase for the week.
The news that the Chinese leadership will be introducing significant monetary and fiscal support to support the world’s second-largest economy contributed to a surge in iron prices last week. The October futures listed on the SGX delivered a weekly gain of 11.4 per cent as they settled at 102.09 dollars per tonne on Friday. The new week has seen a robust start, with the November contracts trading around seven per cent above Friday’s closing price.
The improving Chinese demand outlook also fuelled significant gins for the base metals last week. The three-month copper futures listed on the LME rose by 5.3 per cent over the past five sessions, while the aluminium and zinc contracts increased by 6.5 and 7.5 per cent, respectively. The nickel futures were the week’s laggards amid a gain of 2.9 per cent.
The CBOT futures for grains and oilseeds due for delivery towards the end of the year also delivered healthy gains for the past week. The November soybean contracts rose by 5.3 per cent as supply concerns rose amid robust demand. In addition, the unwinding of short positions by investment funds supported prices. Supply concerns also supported the December wheat and corn futures last week, with the former rising by 2.0 per cent and the latter gaining 4.0 per cent.
Freight and Bunker Markets
The Baltic Dry Index rose by 6.7 per cent over the past week, with the capesizes providing most of the fuel for the gains. The indicator for the largest segment delivered a weekly gain of 14.0 per cent, supported by a weaker tonnage supply. For the supramaxes and handysizes, the weekly gains were modest at 1.3 and 0.4 per cent, respectively, with declining tonnage supply offsetting weak cargo order volumes. The gauge for the panamaxes went against the flow and recorded a weekly decline of 6.0 per cent, ending two weeks of gains. An increase in available vessels in the Pacific and subdued ordering activities across the major basins contributed to the weekly decline.
The Baltic Exchange’s wet freight indices experienced diverging fortunes during the past week. The indicator for the dirty tankers declined by 3.6 per cent, while the gauge for their clean siblings dropped by 9.9 per cent. The index for the LNG carriers shed 6.5 per cent. On the other hand, the indicator for the LPG tanker surged by 21.7 per cent, recovering some of the recent weeks’ losses.
The trading in bunker fuels experienced volatile conditions over the past five sessions, contributing to mixed weekly performances. The VLSFO declined by around three per cent in Houston and Singapore while gaining 0.7 per cent in Rotterdam. The MGO faced equally diverging fortunes over the past week. The latter fuel gained a modest 0.2 per cent in Singapore but declined by 2.8 per cent in Houston and 1.7 per cent in Rotterdam.
The View from the Shipfix Desk
As discussed in the previous two editions of “The Fix”, sugar prices have surged over the past few weeks as dry weather conditions and fires in Brazil’s key growing area for the commodity have weighed on the supply outlook. While the March #11 sugar futures retreated from their recent highs on Thursday and Friday, the contracts ended last week more than 20 per cent higher than two-and-a-half weeks earlier.
The deteriorating outlook for the Brazilian sugar harvest has weighed on cargo order volumes in recent weeks, affecting demand in the supramax and the handysize segments. The decline in demand for seaborne transportation of Brazilian sugar exports will have an outsized effect on tonne-mile demand as buyers in the Far East and Southeast Asia make up a large part of the customer base.
While cargo order volumes for Brazilian exports due for discharge in the Far East and Southeast Asia have recovered somewhat over the past weeks, the aggregate for September looks set to be around 50 per cent lower than the same month last year. Although it is still early days, there appear to be no significant attempts for substitution, with cargo order volumes for Australian and Thai sugar shipments remaining low. Hence, in the short term, the problems associated with the Brazilian sugar trade will support market prices and weigh on tonne-mile demand as the options for supplies from other origins appear limited.
