Dry bulk FFA market - A wild bear chase

Bearish market sentiment has descended upon freight rates with the value of FFA contracts slashed and in full retreat. The Baltic Dry Index (BDI) dipped to 968 points on Wednesday after plateauing for past three days in a 977-980 range. 

“It was the bears chasing the bulls over the side of cliff and the paper gave up some value on the prompt contracts.” Said an FIS FFA broker. 

As such, the capesize freight rates for August traded to $10,500, down $1,100 day-on-day, Sept was down to $13,500, Q4 to $15,000 and Cal 18 to $12,800 on Wednesday.

“The bears in the FFA market continued to chase the buyers and one by one, slowly they turned into lemmings, throwing themselves over the edge. The front end of the curve then came under considerable pressure,” an FIS broker observed.

At the end of Wednesday, he noted that some capesize buyers did try to make a comeback but it was an otherwise an “ugly day” for the capesize market.

The mood was not restricted to capesize market, as panamaxes felt it hard to resist the downward slide in the market trend.

“We witnessed further declines across the curve today on panamax paper with sellers sharpening their ideas as we saw the front of the curve crumbling to $8,550 low on August and $8,850 on September,” said a London-based FIS FFA broker.

However, he observed good support on Q4 at $9,250 and Cal18 at $8,700 where the sellers were less aggressive compared to other periods. Overall though, the tone of panamax paper remained bearish in the short term with a lack of fresh cargoes and failure to draw support from the under-pressure capesize market.

With the larger vessels in dire straits, the supramax market was plunged into negative territory with the supramax time charter average recorded at $9,006 on Wednesday, down $75 day-on-day.

“We saw supramax paper come under some real pressure as rates slipped right from the start. August was first sold $8,900 and down to $8,600 throughout Wednesday,” said an Asia-based FIS FFA broker. 

Later on Wednesday’s trading session, Q4 finally broke the $9,000 resistance barrier as $8,900 traded and there were some small bids of support creeping in, but overall the offer side of the curve remains much heavier.

The handysize segment is perhaps the sole survivor of the onslaught of the sellouts. The handysize Time Charter Average held stable throughout the week, with rates beginning at $7,338 on Monday, before ending $7,339 on Wednesday, virtually unchanged in the span of three days.

This bright spot aside, overall, the freight market resembled something of a mass movement this week as the sellers took control. Whether their actions are based on market fundamentals or rest on purely market sentiment remains to be tested. But for now, the wild bears have been let loose and let hope that’s only temporary. 

Posted 28 July 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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