The Dry Bulk Weekly Review in Shipfix Data
Over the past month, many agricultural commodities have faced headwinds amid abundant supplies or soft demand. Shipfix’s forward-looking cargo order data sets indicate that, in some cases, prices could recover in the coming month amid pressure on global supplies. Still, a downward trend in Chinese demand for seaborne transportation of agricultural commodities could continue to weigh on prices.
Sugar Prices Should Recover Amid Lower Demand for Seaborne Transportation
After trending lower for nearly four months, sugar prices rose by more than thirteen per cent between the end of May and the beginning of July. Still, despite the rebound, the sugar #11 futures for delivery in October were around seventeen per cent below the levels seen in November last year. However, over the past fortnight, prices have yet again come under pressure, with the futures shedding around ten per cent. The rapidly shifting market conditions are a result of robust global demand and a tight supply situation following India’s virtual exit from its recent role as a major exporter. While prices show considerable volatility, the general price level remains high in a historical context, with the readings seen late last year the highest in around twelve years.
Given the time lag between the advertising for seaborne transportation and the discharge of the sugar cargo at the destination, robust cargo order volumes during the second half of May and the early stages of June have contributed to better-supplied markets and the lower prices in recent weeks. The solid weekly volumes are also likely to continue to weigh on prices in the coming weeks, but only for a limited period.
Over the past few weeks, a significant decline in demand for seaborne transportation of Brazilian sugar exports has resulted in weekly global cargo order volumes dropping to levels not seen since early April. Weekly cargo order volumes during the past three weeks are around half of what was recorded at the beginning of June. The current month is also on track to fall below the volumes recorded during the same period last year, possibly by more than one million tonnes, should the rest of the month evolve in a similar fashion to the first half. Hence, sugar prices look set for a reversal in August amid tighter global supplies.
Cargo Order Volumes Indicate Better Supplied Rice Markets
The rice futures due for delivery in September ended last week nearly ten per cent below the levels seen a month ago. The recent decline followed a period of robust gains during the first half of the second quarter, as low cargo order volumes at the early stages of the year weighed on global supplies. Rice prices have faced significant volatility over the past few years amid rising demand and headwinds for global supplies as extreme weather conditions in key growing areas have weighed on production. As a result of the latter, the Indian government introduced export restrictions last year to safeguard domestic supplies, which made the global supply situation even more challenging.
After depressed cargo order volumes during much of last year, demand for seaborne transportation of rice has recovered over the past ten months. While global aggregate demand remains below the levels recorded during 2021, monthly cargo order volumes have been around six million tonnes during the second quarter. Initially, in the absence of India, exports from Pakistan and Thailand fuelled the recovery. However, the resumption of shipments from India earlier this year has become the main driver since then.
While weekly cargo order volumes for rice loading globally have been volatile over the past months, the robust volumes have contributed to a better-supplied global market and driven prices to the current low levels. The aggregate for the first three weeks of July suggests that the month’s total may match the reading for June. Hence, rice prices look set to remain under pressure in the coming months.
Chinese Agricultural Imports LIkely to Come Under Pressure
China is a significant importer of the two commodities mentioned above. Hence, changes in Chinese demand can also contribute to price swings in the same way as shifting supply conditions. Beyond rice and sugar, Chinese buyers also have a dominant position in the seaborne trade for grains and oil seeds.
Despite some volatility during the past week, the grains and oilseeds futures are trading at, or near, the lowest levels since 2020. While prices generally have been trending lower since 2022, the decline has accelerated since the latter parts of May. Over the past two months, the September wheat contracts have dropped by nearly 25 per cent, while the soybean and corn contracts have shed approximately fifteen and nineteen per cent, respectively. A bullish outlook for the global supply situation contributed to the downward pressure on prices since May, but lacklustre demand in some cases has also weighed on prices.
Cargo order volumes for agricultural commodities discharging in Chinese ports have been trending lower since March. While the year started strongly, with cargo order volumes well above what was observed during the same period last year, the monthly aggregates for May and June failed to match the readings for the same months in 2023. In addition, with more than half of July behind us, the current month looks set to fall well below the volumes seen a year ago. Should the rest of the month develop along the same lines as the first three weeks, there could be a 50 per cent decline in cargo order volumes year-on-year.
An increase in Chinese demand for seaborne transportation of agricultural commodities from Ukraine partly fueled the robust volumes during the second half of the first quarter. However, this development faltered as we entered the second quarter, with shipments from South America’s east coast remaining the driving force until the beginning of June. Since then, weekly cargo order volumes have been depressed across the board, signalling lower Chinese imports in the coming months.
Unless Chinese demand recovers soon, the depressed cargo order volumes suggest that grain and oilseed prices will remain under pressure in the near term. While a seasonal rebound for the US-China trade is likely in the coming months, should shipments from South America stay depressed, it would offset the positive impact of such a development.
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