The Baltic Dry Index returned to the black on Thursday as the capesizes recovered some of Wednesday’s losses. The commodities had a mixed session, with iron ore and grains retreating while coal benefitted from rising natural gas prices.
By Ulf Bergman
Macro/Geopolitics
After robust gains during last week, the US dollar index has given up large parts of the increase over the past few sessions as predominantly soft US economic data have fuelled fears in some quarters that the world’s largest economy may dip into recession in the coming year. Data showed that private businesses in the US created the lowest number of jobs since early 2021, but, on the other hand, weekly jobless claims fell more than expected. Should today’s release of the non-farm payroll data for August prove to be weaker than expected as well, further dollar weakness can be expected as markets will price in a higher probability of a 50 basis points interest rate cut when the Federal Reserve’s policymakers meet in the middle of the month.
Commodity Markets
Crude oil experienced some volatility during yesterday’s trading session, with contradicting news flows fuelling the swings. Initially, prices continued to move lower amid weak economic data. Still, an announcement by OPEC+ that the planned production increase would be postponed by two months saw crude reverse course to trade around one per cent above Wednesday’s close. Still, the gains proved short-lived, and the November Brent futures ended the day broadly unchanged at 72.69 dollars per barrel. After a weak start to today’s session, the contracts have edged higher and are trading around half a per cent above yesterday’s close.
Following three sessions of significant losses, the European natural gas market went into recovery mode on Thursday as an extension of infrastructure maintenance work in Norway put a renewed focus on supplies. The front-month TTF futures rose by 1.1 per cent, settling at 36.20 euros per MWh. The contracts have continued to recover in today’s session and are trading more than three per cent above yesterday’s closing price.
The benchmark futures for the Asian and European coal markets also recovered some of the recent losses during Thursday’s activities, with higher natural gas prices among the contributing factors. The October Newcastle futures recorded a daily gain of 0.8 per cent, ending the session at 140.50 dollars per tonne, while the Rotterdam contracts increased by 0.4 per cent to settle at 113.55 dollars per tonne. The futures have also continued to recover in today’s session amid significant gains.
Iron ore continued to face headwinds yesterday as traders fretted over the outlook for Chinese demand and extensive inventories. The October SGX futures declined for a fifth consecutive session and settled at 92.02 dollars, following a daily loss of 0.6 per cent. However, the contracts have seen a rebound in today’s trading amid suggestions that a limited recovery in steel demand in China may be on the cards for the coming two months.
The base metals saw mixed fortunes during yesterday’s session. Copper stood out from the rest, with the three-month futures listed on the LME ending the day with a 1.5 per cent gain as demand recovered. In contrast, the aluminium and nickel contracts shed 0.8 per cent, while the zinc futures dropped by 2.1 per cent, as soft economic data weighed on the demand outlook.
The wheat and corn December futures listed on the CBOT gave up some of their recent gains during yesterday’s trading activities as concerns over harvests eased. The wheat contracts retreated by 1.0 per cent, while the corn futures shed 0.5 per cent. In contrast, the soybean contract for delivery in November recorded marginal gains.
Freight and Bunker Markets
The Baltic Dry Index recovered some of Wednesday’s losses yesterday as the capesizes resumed their recent advance. The headline indicator rose by 0.9 per cent as the mid and small-sized vessel segments tempered the gain amid continued weakness.
The gauge for the capesizes rose by 1.9 per cent as cargo order volumes in the Atlantic basin recovered from a soft start to the week. The indices for the small and mid-sized segments recorded daily losses of around half a per cent as demand remained weak.
The Baltic Exchange’s wet freight indicators recorded small or no changes yesterday. The index for the dirty tankers rose by a quarter of a per cent, while the gauge for the LPG carriers shed a third of a per cent. The indices for the clean and LNG tankers remained unchanged for the day.
During Thursday's session, the trading in bunker fuels delivered mixed results across the world’s leading maritime hubs. In Singapore, the VLSFO recorded a daily gain of 1.0 per cent, but the fuel shed 1.0 per cent in Rotterdam and remained broadly unchanged in Houston. The MGO retreated by 1.0 and 0.5 per cent in Rotterdam and Houston, respectively, while ending the session broadly aligned with Wednesday’s close in Singapore.
The View from the Shipfix Desk
The cargo ordering activities for the US harvest season have been underway for the past month. Spot order volumes for cargoes loading in the US Gulf have seen a seasonal recovery, with the aggregate for August approaching 13.3 million tonnes despite a drop during the month’s final week. The current week is also showing promise, with demand for seaborne transportation of agricultural commodities from the southern US ports already significantly above the previous week’s reading.
Still, the seasonal recovery for the grains and oilseed trade in the US Gulf somewhat differs from what was observed a year ago. The demand for long-distance voyages to China and the Far East is lower than during the same period in 2023. While the overall demand rose by nearly ten per cent year-on-year in August, the volumes for discharge in China and the rest of the Far East declined by approximately eighteen per cent.
As demand for shipments to ports in eastern Asia has seen a relative decline, cargo order volumes for US agricultural commodities for discharge in the Mediterranean and other less distant destinations have more than made up for the shortfall. Hence, the trade is seeing a decline in spot tonne-mile demand, which will provide continued headwinds for the small and mid-sized vessel segments. In addition, the shorter voyages will contribute to higher tonnage supply in the coming months.
Data Source: Shipfix