Dry bulk FFA market – facing unpredictable weather

2017-06-16

Dry bulk freight rates held stronger for most of this week, thanks to stronger panamax rates that continued to lift the market while capes were more mixed. Throughout the week, capesize rates have offered little support following pattern of mixed sell-offs.

The market’s overall indicator, the Baltic Dry Index (BDI) stabilised in a 865-870 points range for most of the week. At one point, BDI was flat at 870 points for June 12-13 before slipping to 865 points on Wednesday.

“The capesize paper market witnessed another sell-off on Wednesday with particular focus on prompt contracts,” said a FIS FFA broker. “The Q4 period onwards was more resilient with the majority of selling interest coming from spreads into the deferred periods.”

As a result, higher cape FFA volume changed hands in mid-week showing combined volume of 3,279 lots on 12-13 June and 3,070 lots on 14 June.

Thursday saw capes come under further pressure as the physical market showed no immediate sign of a recovery and paper continued weaker, falling nearly 10% in the morning session as the index came under pressure.

“There is little to indicate the physical is in for a recovery in the short term although the deferred strength indicates a hope of rates being revived beyond July,” added the FFA broker.

By contrast, panamax rates enjoyed a better run as buyers began to return to the market on improved activity on both basins.

“The physical market remains firm in both basins, and consequently the index moved above $7,000 on Wednesday,” said an FIS Panamax FFA broker. However, he noted that some late selling interest soon saw the market moving down towards the close and ending the day mostly flat with a total of 1,945 lots traded.

Unlike the capesize market, the panamax market remained continued to push on both physical and paper trades, with spot prices settling at $7,242 by Wednesday, up $563 or 8% from $6,679 reported on Monday.

The good run suggested that panamax FFAs would be expected to be further supported up in the near term. The market drifted early on Thursday before attracting more buying to bring the market up again on talk of better index which rose by 277 points.

The rally in panamax rates then started to rub off on the supramax and handysize paper markets which both saw rising freight rates. In supramaxes, spot prices continued to tick up throughout the week settling at $7,604 by Wednesday, up $158 from $7,446 on Monday.

Meanwhile, handysize rates remained steady throughout the week, recording $6,224 by Wednesday, up $46 from $6,178 on Monday.

A mixed outlook overall then for the dry bulk freight market and one which mirrors the action in the iron ore and coal markets in particular – two commodities which have strong links to the Chinese economy. Of course, with little clear indication of where the Chinese economy is going, the freight market is not unlike a weather vane, liable to frequent changes of direction from moment to moment.

Source: Titus Zheng, FIS Singapore

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