Those who do not follow commodities closely would assume current market tribulations are due to the downturn in the Chinese economy, rather than the reality, which is that freight and commodity players have, by and large, brought this to themselves.
The picture in freight is almost bleaker than in iron ore: the fleet is too large, and the newbuilding order book looms over it like the grim reaper. Rates have now become reliant on fleet distribution for relief, rather than an influx of cargo.
Be that as it may, talk of owners laying up ships and a firm start to the week on iron ore saw unexpected enthusiasm from capesize buyers. The physical failed to show any real signs of improvement although the decline seemed to be coming to a stop which left offers hard to find.
Rates were marked higher as offers were paid especially on Q2, Q3 and Q4 16 contracts but as so often, that light at the end of the tunnel was in fact a train and it quickly ran over those that stood in the way.
Another brief rally on Thursday morning with offers paid along the curve but the rally soon dissipated on rumour that Tubarao had been closed due to pollution and buyers pulled back leaving sellers searching fruitlessly for good bids.
Panamaxes saw better buying too, largely attributed to some short covering in the face of a flattening index. With sellers reluctant we saw buyers stepping up which resulted in Q1 and Cal16 trading up and buyers were still present at last done but unwilling to chase any further.
Better bid again on panamax paper as the market continued to see short covering and some decent gains in Wednesday’s morning session, particularly on prompts. The market gave back some of these gains but we were still left better on the day.
With both basins still saturated with tonnage Thursday saw another day of losses across the curve, which was exacerbated by some closing out. Prompts once again bore the brunt as levels were sold off through out the day only finding some light support at the close.
Where do we go from here? Without an end to the bargain basement shopping probably not far. For banks it is almost certainly counterproductive to add any more existing mortgages to their books. Buying cheap excess tonnage this time round would be the equivalent of Turkeys voting for Christmas.
Instead maybe it is time to sell some scrap futures and let liquidation begin in earnest. Either way, it can only be a matter of time before the cry is heard around the markets: bring out your dead!
Contact FIS: http://freightinvestorservices.com/freight-derivatives/ffas/
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