The Baltic Dry Index extended gains into a sixth session on Tuesday as the capesizes continued to recover. For the commodities, yesterday’s session saw losses dominating the activities, with a stronger dollar among the contributing factors.
By Ulf Bergman
Macro/Geopolitics
The US dollar continued to strengthen yesterday as markets envisaged that the Federal Reserve would have less room to manoeuvre for monetary easing amid higher inflation expectations. It is widely expected that the incoming US administration will pursue policies that will be inflationary, and hence, investors are reassessing their projections for the future. The US dollar index rose by 0.5 per cent yesterday, ending the session at the highest level since the end of June.
A stronger dollar, coupled with Chinese authorities likely to allow the yuan to soften to offset US trade policies, could weigh on commodity demand and prices in the coming months. Such a development would also be negative for freight rates.
Commodity Markets
After two sessions of significant headwinds, crude oil prices stabilised yesterday as short-term supply tightness offset concerns over the demand outlook. The January Brent futures edged up marginally, ending the day at 71.89 dollars per barrel. The contracts have continued to gain in today’s session and are trading nearly half a per cent above yesterday’s close.
European natural gas prices continued to rise yesterday, supported by weather-driven demand and lingering concerns over supplies. The December TTF futures recorded a daily gain of 1.2 per cent, settling at 44.26 euros per MWh. The contracts have retreated from yesterday’s eleven-month high in today’s trading amid losses of approximately two per cent.
The benchmark futures for the Asian and European coal markets saw only limited moves yesterday. The December contracts for delivery in the Australian port of Newcastle shed 0.2 per cent, settling at 143.75 dollars per tonne. Despite two days of gains at the end of last week, yesterday’s closing price was around seven per cent below the levels recorded in early October, as higher Chinese production has weighed on prices. The contracts for delivery in Rotterdam next month edged up marginally, ending the session at 122.25 dollars per tonne and in the middle of the past two months’ narrow price range.
Following two straight sessions of significant losses, iron ore had a less eventful session on Tuesday. The December contracts listed on the SGX shed a marginal 0.1 per cent, ending the session at 100.52 dollars per tonne as investors remained wary over the Chinese demand outlook amid disappointments over the efforts to stimulate the world’s second-largest economy. The contracts have remained broadly in line with yesterday’s close in today’s trading.
The stronger dollar and concerns over the Chinese demand outlook weighed on the base metals during yesterday’s trading session. The three-month copper contracts listed on the LME ended the day 2.0 per cent below Monday’s close. The aluminium contracts shed 0.9 per cent, while the zinc and nickel futures retreated by more than 1.3 per cent.
After last week’s gains, the near-dated grain and oilseed futures listed on the CBOT extended on Monday’s losses yesterday as robust supplies weighed on prices. The December wheat and corn futures declined by 2.3 and 0.3 per cent, respectively, while the January soybean contracts retreated by 1.1 per cent.
Freight and Bunker Markets
The Baltic Dry Index rose for a sixth consecutive session on Tuesday, propelled higher by the capesizes and the panamaxes. Still, most of the headline indicator’s 4.9 per cent gain originated from the largest segment.
The gauge for the capesizes surged by 9.4 per cent, fuelled by rising global spot demand and lower vessel availability in the Atlantic. The index for the panamaxes rose by 1.0 per cent, supported by relatively robust demand in the Atlantic and Pacific basins. The indicator for the supramaxes shed 1.2 per cent, with soft demand in the Atlantic contributing to the loss. The index for the handysizes retreated by 0.6 per cent amid rising tonnage supply.
The Baltic Exchange’s wet freight gauges maintained the recent narrative of losses for the clean and dirty tankers, while the indices for the liquified gas carriers avoided the red for a second day. Concerns over demand contributed to the dirty tanker index declining by 0.9 per cent, while the gauge for the clean tankers shed 0.4 per cent. After remaining unchanged on Monday, the freight index for the LNG carriers gained 1.0 per cent yesterday, while the LPG freight gauge rose by 2.5 per cent.
The trading in bunker fuels had a second session of mostly losses on Tuesday, with lower crude oil prices weighing on sentiments. The VLSFO declined by 1.6 per cent in Singapore, while Houston and Rotterdam recorded losses of half a per cent. The MGO retreated by 2.6 per cent in Singapore and 0.9 per cent in Rotterdam while remaining unchanged for the day in Houston.
The View from the Shipfix Desk
The Baltic Exchange’s index for the supramaxes has not recorded a day of gains for the past month. While the gauge has had a few days of no change, it has declined by more than seventeen per cent over the past month, lagging behind all of the other segments. The recent decline has also contributed to the index being 22 per cent lower than at the same time last year.
While last week saw demand for supramaxes picking up in the Pacific and Indian Oceans, volumes were significantly lower than a year ago. Continued weakness in the Atlantic saw cargo order volumes 58 per cent lower than during the same period in 2023. In the Pacific, demand was 42 per cent lower, while the Indian Ocean saw a 50 per cent drop. The current week has come off to a weak start, with volumes at the moment looking to fall short of last week’s amid weakness in the Atlantic and Pacific basins.
The weak demand for the supramaxes has, to some extent, been offset by pressure on vessel supply in the Pacific and the Atlantic. Last week, the number of vessels available in the two basins was lower than the long-term average. On the other hand, the Indian Ocean remained well-supplied last week after a brief dip during the preceding seven days.
With the recent weak demand situation and lack of indications that cargo order volumes are picking up, there is little to suggest that the supramaxes will see a revival in the short term. While the past week’s tonnage supply situation may provide some limited offset, any such development looks set to be negligible.
source: www.breakwaveadvisors.com
