The Baltic Dry Index declined last week as capesize and panamax freight rates faced downward pressure. In contrast, the smaller vessel segments saw continued freight rate gains. Commodity markets were volatile amid uncertainty over demand and supply, driven by tariff threats and the possibility of a Ukraine peace deal. Crude oil and iron ore prices ended the week broadly unchanged, while coal prices remained under pressure.
By Ulf Bergman
Macro/Geopolitics
Somewhat overshadowed by threats of new tariffs and a rapidly changing security environment in Europe, the US released weaker-than-expected economic data on Friday. Retail sales in the world’s largest economy declined by 0.9 per cent in January compared to the month before. The market consensus had projected a marginal decline of 0.1 per cent. January’s drop was the largest monthly decline since March 2023, with adverse weather conditions and fires in California putting pressure on consumer spending. The soft reading weighed on the US dollar as traders saw it as an indication that the Federal Reserve may resume its monetary easing in the not-too-distant future.
Commodity Markets
The past week was a tale of two parts for crude oil prices. Following gains on Monday and Tuesday amid concerns over Russian and Iranian oil supplies and new tariffs, the second half of the week saw a reversal of fortunes after news emerged that the US president had initiated talks with Russia regarding a peace deal for the war in Ukraine. As a result, the April Brent futures recorded only a marginal 0.1 per cent gain for the week as they settled at 74.74 dollars per barrel on Friday. The contracts have returned to the black in today’s session, although gains have been marginal.
The prospects of a peace deal for Ukraine weighed heavily on European natural gas prices during the second half of last week, as it could lead to an improved supply situation. The front-month TTF futures recorded a weekly decline of 9.0 per cent as they settled at 50.69 euros per MWh on Friday, the lowest closing price in over two weeks. The contracts have continued to retreat in today’s session and are trading around 1.5 per cent below Friday’s close.
Fear of oversupplies dominated the coal trading during the past week. The front-month Newcastle futures recorded a weekly decline of 5.1 per cent and ended Friday’s session at 105.10 dollars per tonne, the lowest in over three years. The Rotterdam futures for delivery next month shed 4.3 per cent over the past five sessions, ending the week at 99.70 dollars per tonne.
Iron ore experienced some volatility over the past week as supply disruptions amid bad weather in Australia and concerns that steel tariffs will weigh on demand competed for traders’ attention. The March SGX futures ended Friday’s session at 106.15 dollars per tonne, marginally lower than a week earlier. The contracts have experienced light headwinds in today’s trading, with losses of around a third of a per cent.
The base metals experienced changeable conditions throughout last week as a softer dollar and concerns over the demand outlook amid increasing talk of tariffs provided contradicting signals. The three-month copper futures listed on the LME recorded a weekly gain of 0.7 per cent, while the aluminium and zinc contracts edged up by 0.4 and 0.1 per cent, respectively. In contrast, the nickel futures delivered a weekly loss of 1.8 per cent.
Fuelled by robust gains on Friday, the March wheat futures listed in the CBOT increased by 3.0 per cent over the past week amid solid exports and mounting weather-related risks. The corn contracts recorded a weekly gain of 1.8 per cent, supported by a tight global supply situation. On the other hand, the soybean futures for delivery next month declined by 1.3 per cent over the past week as soft export demand and rapid progress for the Brazilian harvest put pressure on prices.
Freight and Bunker Markets
Following robust gains during the preceding week, the Baltic Dry Index slipped back into the red last week. Despite some late gains, the headline gauge shed 2.8 per cent over the past week as the panamaxes and capesizes faced early headwinds. On the other hand, the smaller segments experienced a second strong week, offering some offset.
The index for the capesizes recorded a weekly decline of 14.8 per cent, with a rise in market lead times contributing to the decline. The indicator for the panamaxes fell by 5.3 per cent last week, with pressure on cargo order volumes in the Pacific contributing to the headwinds. In contrast, the indices for the supramaxes and the handysizes delivered weekly gains of 13.0 and 18.6 per cent, respectively. Both segments benefitted from lower tonnage supply in the Atlantic and Pacific basins.
The Baltic Exchange’s wet freight indices also had a week of mixed fortunes. The gauge for the dirty tankers recorded a modest weekly gain of 0.8 per cent, while the indicator for their clean relatives declined by 4.9 per cent over the past five sessions. After several weeks of significant losses, the spot index for the LNG tankers rose by 10.6 per cent over the past week, but the LPG freight indicator dropped by 5.7 per cent.
Conditions in the crude oil market affected bunker fuel trading, with early gains offset by losses during the second half of the week. Over the week, the VLSFO rose by a quarter of a per cent in Singapore while declining by 2.0 per cent in Houston and 1.2 per cent in Rotterdam. The MGO recorded a weekly increase of 1.4 per cent in Rotterdam, but gains in Singapore and Houston were limited to 0.3 and 0.4 per cent, respectively.
The View from the Shipfix Desk
The Baltic Exchange’s panamax index retreated by 5.3 per cent over the past week, with weak order volumes for cargoes loading in the Pacific among the contributing factors to the decline. Despite a significant gain the week before last, the index ended Friday’s session 38 per cent lower than at the same time a year ago, making it the second-worst-performing segment after the capesizes.
As highlighted in “The Fix” last week, the demand and supply situation for the panamaxes does not suggest that the segment is due for a significant recovery in the near term. While global cargo order volumes have recovered over the past two weeks, the weekly aggregates have failed to match the mid-January levels.
During the past week, demand for seaborne transportation of imports from Chinese buyers continued to recover following the lull during the Lunar New Year holidays. Still, the rebound has been less robust than after last year’s holidays. At the same time as Chinese demand has shown signs of a revival, cargo order volumes due for discharge in Indian ports have continued to trend lower.
Globally, lower demand for seaborne transportation of coal in the spot market has contributed to the headwinds for panamax cargo order volumes. While demand for shipments to China has shown some promise over the past two weeks, the aggregates are significantly lower than during recent months. For India, demand for seaborne coal imports dropped to one of the lowest levels in recent years during the past week. However, cargo order volumes for agricultural commodities due for discharge in the Far East have provided some offset for the weakness in the panamax coal trade. Hence, a recovery for panamax freight rates depends on continued demand from the agricultural trade and a return of India’s coal importers.
Data Source: Shipfix