The Dry Bulk Weekly Review in Shipfix Data
Last week’s rebound in demand for seaborne transportation of coal should have a limited positive effect on prices for the fossil fuel. However, a rapid descent in market lead times for coal bound for China could support a more significant but temporary price spike. In contrast, an absence of a seasonal recovery for Chinese copper demand could see prices retreat in the coming weeks.
A Minor Rebound in Demand for Seaborne Transportation of Coal Supportive of Limited Price Gains
Coal prices have faced some headwinds and volatility since the beginning of the year. While recent cold weather across part of China has fuelled demand for the fossil fuel and contributed to a minor rebound, the April Newcastle futures are currently trading near the levels seen at the end of last year. In Europe, the contracts for delivery in Rotterdam have also experienced volatility and some downward pressure, ending the past week around four per cent below last year’s final session. Lower natural gas prices and a better-supplied coal market have contributed to the changeable conditions.
While the coal futures for the Asian and European markets have recovered from recent lows, the upward momentum will likely be short-lived. Weekly aggregate global cargo order volumes for coal have been under pressure for much of the past three months. Lower demand for seaborne transportation of coal to China and India, two of the largest importers, has contributed to global volumes dropping by nearly 50 per cent since November.
The reopening of the Chinese economy following the Lunar New Year celebrations has translated into a rebound in demand for shipments of coal to the country’s ports. Last week, cargo order volumes reached 30 million tonnes. However, based on last year's seasonal patterns, the rebound is unlikely to be extensive. Hence, based on cargo order volumes only, the upside for coal prices should be limited.
Drop in Market Lead Times for Chinese Cargo Orders Point Towards a Rapid Rebound in Demand
As seen above, a rebound in demand for seaborne transportation of coal to Chinese ports provides some support for fossil fuel futures contracts. However, a parallel development of a sharp drop in market lead times for cargoes bound for China could provide additional fuel for higher prices, at least in the short term.
The time between the first date of circulation of orders and the first loading date for shipments of coal to China has fallen to very low levels in recent days. The development suggests that Chinese coal buyers are in a rush to restock inventories following the recent cold spell and the Lunar New Year holidays. While order volumes remain relatively modest, the spike in near-term demand should see coal prices moving higher. Still, the effect is likely to be short-lived and, as such, will primarily fuel additional volatility.
Depressed Cargo Order Volumes for Copper Indicate Prices will Face Headwinds
Copper prices have had a volatile start to the year. While the three-month futures listed on the LME currently are trading broadly in line with the levels seen at the end of last year, the past two months have seen the contracts going through two cycles of decline and recovery. Over the past fortnight, the contracts for the red metal have gained around five per cent after losing considerable ground during the first week of February. An extended period of soft Chinese economic data, which has fuelled speculations of more stimulus programmes, and the recent Chinese New Year holidays have contributed to the changeable market conditions over the past two months.
Weekly global cargo order volumes for copper have also been volatile since the beginning of the year. A strong recovery in demand for seaborne transportation of copper during the first few weeks of the year preceded higher copper prices during the second half of January. A decline in order volumes in the run-up to the Chinese New Year subsequently weighed on prices. However, non-Chinese demand has since contributed to a rebound. Still, last week’s weak cargo order volumes indicate that the recent recovery could lose momentum, with copper prices declining yet again. On the other hand, should Chinese demand stage a seasonal rebound in the coming weeks, prices would move above current levels.
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