The Dry Bulk Weekly Review in Shipfix Data
Shipfix’s forward-looking data sets provide a mixed short-term outlook for the base metals. Copper prices look set to face some resistance in the coming months, as demand for seaborne transportation of the red metal was solid during the past month. Recent developments for cargo order volumes suggest that zinc and nickel markets will stabilise in the short to medium term, with the supply outlook for the two metals having a moderating influence on prices.
Recent Robust Cargo Order Volumes for Copper Indicate Headwinds for Prices
Copper has had an eventful first half of the year. The three-month futures listed on the LME gained more than 27 per cent between the beginning of January and the second half of May as concerns over global supplies grew amid the rising importance of the red metal as the energy transition gathers momentum. However, over the past six weeks, copper has come under pressure from a stronger dollar amid mounting uncertainty over the timing of the first US interest rate cut and an earlier build-up in Chinese inventories. As a result, the three-month contracts are trading more than ten per cent below the high for the year set on the 20th of May.
After relatively stable cargo order volumes for copper loading globally as dry bulk during the first four months of the year, the past two months have seen demand for seaborne transportation of the commodity trending higher. While weekly volumes showed some volatility during June, aggregate demand for the month was among the highest recorded. Cargo ordering activities rose for shipments to China, the world’s premier importer of copper, and to the rest of the world.
The recent upward trend for weekly cargo order volumes suggests that the global copper market will become better supplied in the coming months. Hence, a return to the prices seen during the second half of May looks unlikely in the short to medium term.
Mean-Reverting Cargo Order Volumes Should Have a Stabilising Effect on the Zinc Market
While zinc prices have been recovering over the past month, the three-month futures listed on the LME nevertheless remain around five per cent below the levels seen during the second half of May. Still, the contracts had a good start to the year and gained nearly twenty per cent between the end of December and the latter stages of May. The early gains were supported by an improved demand outlook and concerns over supplies as mining output declined. However, continued headwinds for the Chinese economy have recently dimmed the demand outlook and weighed on prices. Also, there is a general expectation that the global zinc market will become oversupplied in the coming years, suggesting that the long-term upside for prices is limited.
Cargo order volumes for zinc concentrate loading globally came under pressure during the first quarter of the year as mining output fell by around three per cent year-on-year. Given the time lag between ordering seaborne transportation and discharge at the destination, the decline in cargo order volumes during the year’s first three months contributed to prices peaking in May. However, a substantial recovery in demand for seaborene transportation during April weighed on prices at the end of May as the supply situation improved. While cargo order volumes retreated during the past two months, the aggregates were broadly in line with the average for the past eighteen months. Hence, the current weak upward trend for zinc prices may run out of momentum as the global supply situation looks set to stabilise.
Weaker Cargo Order Volumes Should Limit the Downside for Nickel Prices
Nickel prices have displayed a similar pattern to the ones for the other base metals during the year’s first half. The three-month futures listed on the LME peaked during the second half of May after a gain of around thirty per cent since the end of last year. The advance was fuelled by optimism over the outlook for Chinese demand and some concerns over global supplies. However, the futures have come under pressure and have shed nearly twenty per cent over the past month and a half. Despite disruptions to mining output in New Caledonia, one of the world’s leading suppliers, amid extensive civil unrest, the nickel market has become oversupplied. Inventory levels are expected to reach a four-year high this year, which has weighed heavily on prices in recent weeks.
Cargo order volumes for nickel ore and concentrates loading across the world have been trending higher for much of the past eighteen months. While the beginning of this year saw demand for seaborne transportation coming under significant pressure, cargo order volumes recovered during the latter parts of the first quarter. Monthly volumes in March and April were around two million tonnes, with a majority of the cargoes destined for ports in China. Given the time lag between cargo ordering and discharge, the robust volumes during the middle of the year's first half are likely to have contributed to the recent headwinds for nickel prices.
However, over the past two months, weekly cargo order volumes for nickel have decreased substantially, with a near-total absence of demand for seaborne transportation from New Caledonia contributing to the decline. Cargo ordering activities in the seaborne nickel trade usually are not affected by any seasonal headwinds during the summer in the Northern Hemisphere, and, hence, the decline is more likely a reflection of an oversupplied market. While nickel inventories are likely to remain high, the decline in demand for seaborne transportation of ore and concentrates should limit inventory growth and stabilise prices in the short to medium term.
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