Most commodities faced headwinds on Tuesday as traders became increasingly concerned over the demand outlook amid weak economic data. Still, grains and oilseeds went against the flow, posting gains amid robust demand and suggestions that global supplies may face some limited headwinds. The capesizes fuelled a second consecutive day of gains for the Baltic Dry Index, while the smaller vessel segments continued to provide limited offsets.
By Ulf Bergman
Macro/Geopolitics
The new month has begun with new data releases highlighting the challenging outlook for the Chinese economy. The official Purchasing Managers’ Index for the country’s manufacturing sector remained in contraction territory for a fourth consecutive month with a reading of 49.1, which was somewhat lower than the consensus projection and below the level recorded last month. While the alternative manufacturing PMI from Caixin bounced back into expansionary territory, the reading of 50.4 nevertheless suggested only limited growth.
The weak readings for the Chinese manufacturing sector have raised concerns that the country’s official growth target for the year will not be met, as exports have been the growth engine amid sluggish domestic demand and ongoing problems in the real estate sector. Hence, the calls for more stimulus programmes have increased.
Commodity Markets
Crude oil took a nosedive yesterday amid mounting concerns over the demand in the US and China, the world’s leading consumers of the commodity. While production disruptions in Libya limited the slide, increasing output from OPEC+ looks set to keep markets well-supplied. The November Brent futures dropped by a whopping 4.9 per cent and ended the day at 73.75 dollars per barrel, erasing all of the gains for the year. The contracts continued to slide in the early stages of today’s session, trading more than a per cent below yesterday’s close, but have since recovered some ground amid gains of around half a per cent.
The energy price rout also weighed on the European natural gas market. The front-month TTF futures declined by 3.6 per cent, settling at 37.19 euros per MWh, with high inventory levels across the continent contributing to the fall. The negative momentum has carried into today’s trading, with losses approaching two per cent.
The benchmark futures for the Asian and European coal markets also faced significant headwinds during yesterday’s session as concerns over demand weighed on prices. The futures for delivery in the Australian port of Newcastle next month retreated by 2.0 per cent, ending the day at 142.10 dollars per tonne. The front-month Rotterdam contracts dropped by 3.6 per cent and settled at 116.05 dollars per tonne, the lowest closing price since the final days of July. The two sets of contracts have also recorded further losses in today’s trading.
After a recovery during the second half of August, the new month has seen iron ore coming under renewed pressure as concerns over the Chinese demand outlook mount and inventories build. Yesterday, the October futures listed on the SGX fell by 3.3 per cent, ending the session at 93.62 dollars per tonne. The contracts have lost more than one per cent in today’s trading, contributing to an aggregate decline of approximately ten per cent since Thursday.
Concerns over weak economic data also weighed on most base metals yesterday. The three-month copper futures listed on the LME ended the session with a 2.5 per cent loss, while the aluminium and nickel contracts shed 0.7 and 1.0 per cent, respectively. In contrast, the zinc futures ended the day with marginal gains.
In contrast to the gloom enveloping most of the commodities yesterday, the grain and oilseed futures listed on the CBOT enjoyed a session of gains on Tuesday. Robust demand and concerns that adverse weather conditions could weigh on global supplies contributed to healthy gains as trading resumed after Monday’s closure. The December wheat futures rose by 2.8 per cent as recent heavy rains across France and Germany may lead to a downward revision of harvests. The corn contracts for delivery in December advanced by 2.1 per cent. The November soybean futures recorded a 1.2 per cent gain for the day as hot weather in the US Midwest could reduce output.
Freight and Bunker Markets
The Baltic Dry Index gained for a second consecutive session on Tuesday. A positive day for the capesizes saw the headline index advance by 1.5 per cent. The sub-index for the largest vessels rose by 3.1 per cent amid weak tonnage supply in the Atlantic basin. Still, soft cargo order volumes over the past few sessions suggest that markets will face headwinds in the coming days. In contrast, the indices for the small and mid-sized vessel segments recorded limited losses yesterday. The gauge for the panamaxes shed 0.4 per cent, while the indicators for the supramaxes and handysizes retreated by 0.7 and 0.5 per cent, respectively.
The wet freight indices saw losses across the board yesterday. Concerns over demand amid weak economic data contributed to the gauge for the dirty tankers declining by 0.5 per cent, while the index for the clean tankers fell by 2.0 per cent. The indicators for the LPG and LNG carriers shed 0.9 and 1.4 per cent, respectively.
Despite continued losses for crude oil, the trading in bunker fuels recorded gains in most cases during yesterday’s session. The VLSFO ended the session with an increase of 0.9 per cent in Singapore, while Houston and Rotterdam recorded only marginal gains. The MGO advanced marginally in the European and American maritime hubs but shed 0.8 per cent in Singapore.
The View from the Shipfix Desk
Despite significant gains during the final stages of August, the grain and oil seed futures for delivery towards the end of the year remain well below the levels recorded at this time last year. While the wheat contracts for delivery in December have gained around eight per cent over the past week, they nevertheless ended yesterday’s session more than fifteen per cent lower than a year ago. The recent gains for the soybean November contracts have been somewhat lower, contributing to the futures trading more than twenty per cent below the levels seen a year ago.
There have been some concerns in recent days about adverse weather conditions affecting the harvests, but global supplies of grains and oilseeds remain robust and weigh on prices. In addition, demand, especially from China, has been facing headwinds and has contributed to lower prices over the past few months.
While cargo order volumes for agricultural commodities have been trending lower since the beginning of the year, the total for the past eight months is around 22 per cent higher than for the same period last year. Still, the aggregate for the previous month was seventeen per cent lower than in August 2023. The development in the spot market for seaborne transportation of agricultural commodities indicates a shift in Chinese demand compared to last year. Ordering activities for cargoes for discharge in Chinese ports were higher during the first quarter this year than twelve months earlier, while current demand levels point towards a year-on-year decline for the third quarter, highlighting a Chinese preference for shipments from the Southern Hemisphere.
The weak Chinese demand for seaborne transportation of agricultural commodities has seen some offset from rising demand from other parts of the world. However, the rebound in weekly cargo order volumes seen during the second half of August last year has yet to materialise this year. Hence, the recent recovery for the grains and oilseed futures will likely prove short-lived.
Data Source: Shipfix