20 January 2019

Shipping index a distress signal for commodities

There are rough seas ahead for the world’s commodity market and there is no clearer sign of this than the slump in the Baltic Dry Index, a key gauge of the price of shipping raw materials. Where commodity prices go, so goes the index.

And lately that’s only been down. On Jan. 24, the index dropped to 1,246. The shipping freight rate index has shrunk 41 percent since the start of the year. Clearly freighter operators are still stuck in the doldrums mainly because of the tepid demand for raw materials in the world’s major economies.

China used to be the saving grace for commodity players — the nation could still boast a strong appetite as demand elsewhere waned. Ministry of Commerce figures show that it is already the world’s biggest importer of coal, iron ore and copper. But last year’s gross domestic product growth slid to a decade-plus low, with devastating effects on the market.

Commodity Daily reported that thermal coal, iron ore and other imported commodities are piling up at the nation’s major ports like Qingdao, Dalian and Qinhuangdao, with stockpiles much higher than at the same time last year. Analysts put the mounting backlog down to a fall in industrial activity since December.

The fall is in line with the drops in average daily coal consumption — from 762,600 tonnes earlier this month to 721,500 tonnes as of Jan. 20 — by the six largest coastal power plants, according to the newspaper. The US Federal Reserve’s exit from quantitative easing and the US dollar’s comeback are added blows to commodity prices and margins.

There’s also unlikely to be a break from the People’s Bank of China. The central bank is not about to pull its punches and ease monetary policy for the sake of commodities players. Its credit crunch and clampdown on local government investment will persist until the end of the Lunar New Year, clouding the short- to medium-term prospects for major commodities, as a China Port Association analyst told the China Securities Journal.

Yet there are still some promising categories that could buck the general downturn. Nanhua Futures, one of the mainland’s major commodity traders, says agricultural products like corn and soybean could outperform most industrial commodities this year as demand remains intact in the country. The demand for copper for construction, cables and electronic parts is expected to remain stable, with some analysts even tipping possible shortages this year.

– Contact the writer at [email protected]



EJ Insight writer

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