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Trade war scare looms over dry freight market

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Under the shadow of a likely trade war between US and China, the freight market showed lethargy with little activities and weaker derivatives.

Probably, the Duanwu festival public holiday in China had set a sleepy tone for the market at the start of the week. This was accompanied by US President’s rhetoric on the slapping of new tariffs on $200bn in Chinese goods which further dampened market confidence.

“With growing fears over USA and China trade war coupled with easing iron ore and coal prices, the prompt contracts came under pressure,” remarked a FIS FFA broker.

As such, the Capesize July contract traded down to $15,100, Q3 contract to $17,700 and Q4 to $22,600 on Tuesday, 19 June 2018. Then, the Cal 19 contract was dragged down as well to $18,600 and bringing the Capesize 5 Time Charter average to spot prices of $17,796 on Tuesday, down $437 at day-on-day basis.

By Wednesday, the Capesize market saw more reds in prompt contracts which at one time saw the July contract being sold down at the $15,000 level. However, the slide did not last long as more buyers returned and pushed the July contract upward to the $16,375 level.

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“A wave of short covering appeared in the Capesize paper market on Wednesday as many participants felt that there was some overselling done at the early part of the week,” explained a FIS shipbroker.

The absence of iron ore majors in fixing physical Capesize vessels over both basins had also placed downward pressure on the paper market, prompting the Capesize time charter average to close at $16,862 on Wednesday, down $934 day-on-day.

Panamax market did not have immunity against the US-China trade tension either and saw its index slipping toward the negative regions on Tuesday. As a result, the Panamax June contract was sold off to $11,150 on Tuesday, while Q3 and Q4 breaking support to print at lows of $11,850 and $12,900 respectively.

On Wednesday, the Panamax paper market was a mixed bag with early interest seeing sellers testing the weeks lows as the physical continues to ease in both basins. However, the Panamax market then gotten a boost from better Capesize rates toward the later half of day.

“Despite a gloomy index, the Panamax clawed back most of the mornings losses in the afternoon session, which was largely attributed to the sharp gains seen on Capes which seemed to unnerve shorts as talk of a floor started to do the rounds.” concluded a FIS shipbroker.

Thus, the Panamax time charter average closed at $11,409 on Wednesday and booked a loss of $305 at a day-on-day basis.

Meanwhile, the Supramax and Handysize market had a quiet week, seemingly unaffected by the US-China trade tension. With that, the Supramax time charter average closed at $11,303 on Wednesday, down by $9 day-on-day, while Handysize finished at $8,643, down $6 day-on-day.