An extended Easter break did not prevent the Baltic Dry Index from further declines as markets reopened on Tuesday. The day before yestrday, the headline index retreated for a ninth consecutive session as all dry bulk segments continued to face headwinds. In contrast, many commodities rose on Tuesday, with some benefitting from supply concerns and others gaining amid improving demand outlooks. European natural gas, grains, and oilseeds were among the minority of commodities that recorded declines.
By Ulf Bergman
Macro/Geopolitics
Over the past few days, PMI data for the US and Chinese manufacturing sectors have surprised on the upside, suggesting that the world’s two largest economies are doing better than expected. In China, the official gauge for the country’s industrial sector exited the contraction territory after five months of readings below 50. Markets had been expecting the gauge to improve but to remain marginally contractionary. However, the indicator rose to 50.8, fuelled by Beijing’s efforts to stimulate the economy. The alternative Caixin PMI for the Chinese manufacturing sector also supported the narrative of a rebound for Chinese industrial production with a reading of 51.1. The developments are likely to provide some support for commodity prices and freight rates.
Across the Pacific, the ISM PMI for the US manufacturing sector showed surprising strength last month. The gauge suggested that US industrial production expanded for the first time in sixteen months. The reading of 50.3 was well above analysts' expectations and could contribute to further delays for the current cycle’s first interest rate cut.
Commodity Markets
The latest escalations in the Middle East contributed to significant gains for crude oil on Tuesday, with prices rising to the highest levels since October. The May Brent futures advanced by 1.7 per cent, settling at 88.92 dollars per barrel. After beginning yestrday’s session with only minor price moves, the contracts have since regained their positive momentum and are trading nearly one per cent above Tuesday’s close.
Mild weather ahead for much of continental Europe and a surge in Norweigian deliveries weighed heavily on the TTF natural gas futures yesterday. The front-month contracts declined by 4.2 per cent, ending the session at 26.20 euros per MWh. Yestrday’s trading has seen the futures continuing to slide amid losses of around two per cent.
Coal remained in recovery mode during Tuesday’s trading activities, with better-than-expected Chinese economic data in the past few days contributing to the gains. The May futures for delivery in the port of Newcastle rose by 0.8 per cent, ending the day at 134 dollars per tonne. The front-month contracts for delivery in Rotterdam settled at 120.25 dollars per tonne, following a 2.1 per cent gain for the day.
Ample iron ore supplies offset suggestions that the Chinese manufacturing sector is recovering, leaving the front-month futures listed on the SGX with only a marginal gain for the day. The contracts ended Tuesday’s session at 101.56 dollars per tonne, 0.2 per cent above Monday’s closing price. The contracts have dropped below 100 dollars per tonne in today’s trading amid losses of around three per cent.
A somewhat softer dollar and renewed optimism over the Chinese demand outlook contributed to gains for the base metals during Tuesday’s activities. The three-month copper futures listed on the LME recorded a daily increase of 1.4 per cent, while the zinc and nickel contracts advanced by 1.7 per cent. The aluminium futures were the day’s marginal winners, with a gain of 1.8 per cent.
The grain and oilseed futures listed on the CBOT were among the limited number of commodities in the red the day before yestreday. Robust global supplies and some concerns over the demand outlook contributed to the futures remaining in the red for a second day. The May wheat futures shed 1.8 per cent, while the soybean and corn contracts declined by 1.0 and 2.1 per cent, respectively.
Freight and Bunker Markets
After an extended break for Easter, the dry bulk freight indices continued to face headwinds on Tuesday. The Baltic Dry Index dropped by 5.9 per cent, with the capesizes contributing to a large part of the headline index’s ninth consecutive daily decline. The indicator for the capesizes fell by 9.2 per cent amid rising tonnage supply in the Atlantic and downward pressure on demand. The smaller vessel segments faced a similar situation but to a lesser extent. The sub-index for the panamaxes shed 3.4 per cent, while the gauge for the supramaxes retreated by 2.1 per cent. The handysizes delivered the day’s least bad performance, with their freight indicator falling by 1.2 per cent.
The Baltic’s wet freight indices also began the new week in the red. The dirty and clean tanker indicators declined by 0.7 and 1.7 per cent, respectively, as concerns over the crude oil supply situation weighed on sentiments amid the rising tensions in the Middle East. The gauge for the LNG carries retreated by 1.3 per cent, while the LPG indicator shed 1.1 per cent.
Rising crude oil prices contributed to gains for most bunker fuels on Tuesday. Rotterdam recorded the most significant price moves, with the VLSFO gaining 1.2 per cent and the MGO rising by 2.3 per cent. In Houston, the two fuels saw gains of 0.6 per cent. In Singapore, the VLSFO declined marginally, while the MGO edged up by 0.4 per cent.
The View from the Shipfix Desk
The strong start to the year for the capesizes has been fading over the past few weeks. Since peaking during the first half of March, the Baltic Exchange’s index for the largest dry bulk vessels has declined by 45 per cent. Still, despite the substantial drop in recent weeks, the gauge remains nearly 40 per cent above the levels seen a year ago.
Global weekly cargo order volumes have shown some volatility over the past month. While the weekly swings are not necessarily out of the ordinary, they have still contributed to the current softer market conditions. Demand in the Indian Ocean has shown some strength, but cargo ordering activities in the Atlantic and Pacific basins have faced some headwinds.
The demand and supply situation in the Atlantic basin contributed to much of the unseasonal strength for the capesizes during the early parts of the year. Pressure on tonnage supply and robust demand delivered favourable conditions for the largest vessels. However, an upward trend for vessel availability in the Atlantic over the past month has led to a change in fortunes.
Additionally, market lead times for orders in the Atlantic basin have been on an upward trajectory since reaching a low for the year in the middle of March. While easing somewhat over the past few days, the substantially longer lead times suggest that demand for capesizes in the Atlantic is shifting into the future. In the other major basins, the measure has remained reasonably stable.
The current week has seen a relatively robust start for cargo ordering in the capesize segment, but Easter is likely to have provided some disruptions. At the same time, vessel supply has seen some downward pressure over the past two days compared to the early stages of the past week. Together with suggestions that market lead times in the Atlantic are facing some downward pressure, the current demand and supply situation for the capesizes may offer some respite from recent declines.
Data Source: Shipfix