Weekly Report 16/09/2024
Next Week's Predictions:
Capes: The Cape 5 TC index drifted lower this week but in a very uneven pattern as the physical market struggled to make any sense of the business concluded in terms of future market direction.
Spot pricing started on Monday morning at $27,832/day and closed on Friday at $25,620/day.
Sentiment: 4
Panamax: The Panamax 4TC spot indicator clearly bottomed out as Monday morning opened at $10,309/day and by the end of the week spot prices had risen by about $1,200/day to reach $11,513/day. The Pacific market was the first to show clear signs of improvement with an increased level of fresh cargoes whilst the Atlantic basin took a bit longer to react as the amount of spot tonnage still to be cleared out was on the high side. Sentiment: 6
Dry Bulk:
The global interest rate-cutting mood is truly present as both the Fed and the ECB have engaged on that path. It could bring potentially good news for the dry bulk industry as a falling $ could tempt commodity-importing countries into increasing their commodity imports in the months to come. Commodity prices are overall on the low side which could also be a positive factor.
Despite concerns over China’s economic performance, August’s official trade data revealed yet another strong month for dry bulk trade. The combined August import total of the three main dry bulk cargoes, ie coal, iron ore and grain imports, of 159.4 million tonnes was within 1 million tonnes of the recent peak last year on August 23 (pure coincidence).
Dry bulk carrier newbuilding deliveries in 2024 have reached 323 vessels totalling 23.84 million dwt, of which 32 Capesize vessels (100,000+ dwt; 6.5 million dwt), 78 Panamaxes (70 - 99,999 dwt; 6.4 million dwt), 120 Handymax vessels (45-69,999 dwt; 7.5 million dwt)
Spot Indices and weekly FFA prices:
BDI 13/09: 1,890 - 06/09: 1,941
5TC BCI 13/09: $25,620 - 06/09: $27,832
4TC BPI 13/09: $11,513 - 06/09: $10,309
11TC BSI 13/09: $18,977 - 06/09: $15,929
Technicals:
Main support/resistance levels on Cape 5TC Spot Index: Support - $21,000/day === Resistance - $ 27,500/day
Weekly traded volumes and open interest:
Open Interest 624,171 lots - (608,721 lots)
Capes/Iron Ore/Steels:
Brazil experienced a decline in iron ore exports during August, with a total of 34.3 million tonnes shipped. This represents an 8.11% decrease compared to August of the previous year.
The most important yearly import decline in China was for iron ore, which fell 5.0 million tonnes from an exceptionally high year-ago total to 101.4 million tonnes. In the process, the y-o-y fall ended an extraordinary 20-month sequence of uninterrupted annual growth.
Iron ore prices have rebounded this week as increased demand for steel in China for the last quarter of the year pushed prices up by 2 to $3/tonne to reach $93/tonne. Dead cat bounce or the start of the q4 rebound?
Steel Rebar futures prices have been on a downward slope since May this year as the January 25 contract has fallen close to Yuan 800/tonne from Yuan 3,800/tonne to Yaun 3,032/tonne last week, indicating continued weakness in the Chinese construction industry.
In a boost for Capesize owners, Brazilian mining giant Vale yesterday upped its full-year iron ore export forecast to between 323 million and 330 million tonnes, up from earlier predictions of 310 to 320 million tonnes.
Panamax/Grains/Coal:
On a monthly basis, Brazilian soybean exports in August saw a significant decline of 28.57% compared to July. This confirms the seasonal trend of declining soybean exports as fall approaches.
At 12.1 million tonnes, soybean imports into China reached a monthly all-time high in August. The annual increase was also sizeable, up 2.8 million tonnes. Although a clear historical positive for vessel demand, news of the August figure has triggered concerns that an oversupply of beans is building in China, threatening crush margins and future import demand as a result.
Increased shipments out of the US west coast have contributed to a stronger Panamax Pacific market. The uplift in NoPac grain volumes has come in addition to consistent demand from Indonesian coal exports, with a constant supply to both India and China supporting the geared and the Panamax markets.
Despite of the abundant grain production this year in both the US and South America, there are significant issues with smooth export flows due to historically low water levels in both the Mississippi River and the Amazon basin. The expected strength of grain exports in both Brazil and the US is heavily reliant on healthy water levels as 45% of Brazilian exports transit through the Amazon area, and up to 2/3 of US grain exports passes through the Mississippi River.
The impact of lower grain export volumes on Panamax supply and demand balances has been amplified by a significant drop in port congestion from last year, with 54 Panamaxes currently waiting off Brazilian terminals compared to 148 at this point in 2023.
Despite all the doom and gloom surrounding the Chinese economy, the robustness of Chinese coal imports keeps surprising us. Total coal imports (steam + metallurgical) were at 45.8 million tonnes in August, out of which we estimate net steam coal imports at 34.5 million tonnes. (Perret Associates)
We currently forecast Q424 Indian coal-fired generation at 99TWh per month with a corresponding estimated coal usage of 58 million tonnes which gives a forecast annual decline of (4%). With this forecast, we forecast 2024 coal-fired generation to total 1,276TWh (or 742 million tonnes estimated volume) giving a 4% annual gain.(Perret Associates)
The Panamax physical market is improving, but not racing ahead as there are still relatively important headwinds like lengthy tonnage lists in the East and a slow increase in fresh cargoes in the Atlantic area.
Shipping and Decarbonisation:
The DEC 24 EUA contract has weakened further this week as news of a faltering German economy and French budget deficit issues kept on enticing bears to be more aggressive. This pushed the front contract below 65 euros/ton Co2 on Friday as it closed the week at 64.96.
EUA DEC-24 (€) 64.10 / 64.20
Keep an eye on
1. Weekly Auction Supply: The weekly auction supply decreases by -13% or 1.9mn EUAs due to the absence of the fortnightly Polish auction. This means the market will see 12.7mn EUAs offered on the EEX between Monday and Friday. 2. Weather: While parts of central Europe have seen flooding this weekend, rain forecasts predict an easing of the situation in the next days. Following the recent 10-day cold snap, several European countries are expected to experience warmer-than-average weather. In Germany, temperatures are predicted to reach 19°C, 5°C above the five-year average. Longer-term forecasts show warmer than average temperatures persisting until mid-October posing a potential delay to the heating season in the bloc. 3. Economic Outlook: Key events in Europe this week include the German ZEW Economic Sentiment, forecasted at 17.2, and Eurozone annual CPI, expected to remain at 2.2%, both providing insights into economic sentiment and inflation. Speeches by German Buba President Nagel and ECB President Lagarde could offer hints on future policy directions. Additionally, the Eurozone Current Account is forecasted at €40.3B, reflecting external trade dynamics. 4. Fossil Generation Profitability: The theoretical profitability of both coal and gas power generation worsened across the forward curve last week. The month ahead dark spread stood at -€22.8/MWh, while the year ahead dark spread stood at -€16.2/MWh. On the gas side, the month ahead spark spread stood at -€22.2/MWh at the end of last week, while the year ahead spark spread stood at -€18.4/MWh. 5. Options: This week, open interest on call options rose by 15% at the €65 strike, saw modest increases of 3.6% at €70 and 3.5% at 80, while open interest on higher strikes like €90 and €100 dropped by -1.9% and -6.9%, respectively. Alternatively, open interest on put options saw a -3% decrease at the €50 strike and -4% at the €70 strike, while the €55 and €65 strikes showed slight increases of 2%, indicating mixed sentiment with some hedging interest around mid-range strikes but declines at other levels. 6. Outlook: Last week losses on the energy side spilled over EUAs, with the latter being bought below the €65 level as expected. The RSI currently stands at 34, indicating that the market remains in its lowest territories, entrenched between likely buying orders below the €65 level on the downside and major technical indicators providing resistance level between €66 and €70. Upticks towards the €70 area will likely be sold again, especially if not fundamentally justified, which would keep carbon locked around current levels for the week. In the absence of bigger moves on the energy complex, we therefor expect a sideways market for EUAs.
Highlight of last week
1. The Dec-24 contract extended its loss for another week and settled at €64.99, a -2.27% drop on the week. The carbon benchmark slid downward on the back of lower trading interest overall. The traded liquidity dropped by -8.8% week on week, down to 140 mEUAs. The weekly volatility corridor, reflected by the difference between the high and low of the week, shrunk by -43% week on week, down to €2.85. The average daily volatility corridor, indicating the magnitude of buyers and sellers daily tug of wars, narrowed by -7% week on week, down to €1.66. On the other hand, the open interest on the Dec-24 increased by 2% on the week. 2. Last week, the overall energy contract was bearish, pulling the carbon benchmark downward as the correlation between gas, power and carbon remained strong. On the short term, the month ahead German power and TTF contract settled at a -6.7% and -2.8% loss on the week, respectively. This drop was equally observed further ahead on the forward curve, as the year ahead German power and TTF contracts settled at a -5.2% and -4.6% loss on the week, respectively. 3. In the week of September 6th, investment funds' long positions slightly decreased by -0.2%, while short positions increased by +16%, leading to a net short position of -14.24 million EUAs, more than doubling from the previous week's -6.7 million EUAs. ICYMI: The European Central Bank lowered interest rates by 25 basis points to 3.5%, amid easing inflation toward 2% and growing concerns about the economy. While expected by analysts, the ECB reiterated that it cannot commit to a specific path for future borrowing costs.
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