Dry bulk FFA market: A Better tomorrow?

Since start of the year, spot iron ore has kept up its bad boy image in gunning down almost every downward price forecasts set by banks and analysts alike. Thus with every price limits predicted by market soothsayers, iron ore price just refused to lie low and bounced up instead in a ‘never-say-die’ attitude.

Banks like UBS, Citigroup and Barclays all have their fair share of re-adjustments after re- adjustment as spot iron ore prices continued to beat market expectations.

The impact of iron ore resurgence has since rubbed off to the freight market and perhaps rescuing it from the depth of earlier slumps in this year. As the dry bulk market has a heavy reliance on China’s demand, so if Chinese demand on raw materials like iron ore and coals are well, then all goes well. If not, woes to the market.

Apparently, China’s physical demand has started to wane as construction activities traditionally slow down during the winter months.

“The futures have priced in the physical drop already,” commented one FIS Freight Forward Agreement (FFA) broker.

As such, he noted the spot capesize time charter rate has fallen to $11,365 on Wednesday, 7 December 2016, down almost 13.4% from Monday rates of $13,131.

“The (capesize) paper is now indicating Dec is expected to settle well into the $8,000 territory which, although not unlikely, certainly paints a rather gloomy end to the year for the big ships.” he said.

However, the freight rates of supramax did seem to offer a ray of hope as spot time charter average rates pushed toward the $10,000 frontier. On Wednesday, spot supramax recorded $9,843 up 1.38% as compared to $9,709 rates seen on Monday, 5 December 2016.

With iron ore living up to its “rebel with a clause” role, better days may indeed lie ahead for the freight market of which the two are so intertwined, given that the “rebel” refused to lay down its arm and kept on shooting down its critics.

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