Dry bulk FFA market: Calmer waters in 2018

Happy New Year to all. The Baltic Dry Index (BDI) closed at 1,262 points on Wednesday, up 32 points, seeming to extend the course of dry bulk recovery in 2018. New Year optimism some may say, but the high dry bulk index finds its backing on the robust capesize rates.

“The bullish tone on capes continued on Wednesday with paper rates surging on the run up to index,” noted an Asia-based FIS FFA broker.
On 3 January 2018, the C5 reported at 6.45 and 6.50 combined with rumoured C7 fixed 10.50 in early trading resulted in a near 10% jump on the 5TC index pushing the headline rate through $16,000 again.

The rising capesize rates corresponded with the price uptick seen in spot iron ore market with price firming toward the $75 per mt on Wednesday. Steel prospect, a driver for China’s iron ore import seem robust as well with the country’s domestic steel industry having a bumper year in 2017.  

China Metallurgical Industry Planning and Research Institute estimated the country’s crude steel output to rise at 832m tonnes on 2017, while for 2018, the institute expected crude steel output to hit 838m tonnes, up 0.7% year-on-year.

Overall, the market is jumping on any bullish news whether on fundamentals or sheer optimism. However, on short term wise, the robust steel demand in China might lose steams over cold weathers and snowing conditions that disrupted construction sites, which lowered the demand of construction steel products.

Short-term iron ore demand was not sparred from the fall as well, with steel mills may shut its ore processing unit to comply with stricter environmental regulations. For instance, Tangshan, one of China’s top steel-producing city received a second-level pollution alert on Thursday, 4 January 2018, where some steel mills’ sintering and shaft furnaces were forced to reduce outputs imposed by the Chinese authorities.

In lieu of the bullish capesize rates, panamax paper rates dipped lower and soften on prompt contracts. On Wednesday, Jan traded up from $11,100 to $11,500 while Feb bounced from $10,600 to $11,500 as buyers had to chase a thin offer side. The panamax time charter average then dipped $65 day-on-day to $10,683 on 3 Jan 2018.
“We saw rates up average $500 on Wednesday with sellers once again hard to come by for the underlying post holidays.” said a FIS shipbroker.

Smaller vessels then started the New Year on more lethargic note with supramax papers opened with strong bids support but lacking offers. Jan was seen trading $10,000-$10,200 range, but the majority of the activity was seen in the Calendars on Wednesday. Later, the Cal 18 reached $10,500 and the Cal 19 $10,250, both being new highs for these periods.

Handysize rates seen a quiet first week of 2018, with the main emphasis placed on the larger vessels. The handysize time charter average dipped by $77 day-on-day on Wednesday to $8,847 with Cal 19 trading at $8,750.

Despite all the good starts in 2018, there are still cautions signs ahead with some contradicting move from major Chinese steelmaker against the Beijing authorities. For instance, China Baowu Steel Group, the world’s second largest steel producer, seeks to boost output capacity from 60m mt to 100m mt. This was in contrast with the Chinese government’s vow to cut steel capacity into the New Year and will not rest till 2020. Therefore, do expect some form of “fireworks” or clashes between politics and market interests in 2018.

Posted 04 January 2018

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Contributed by Titus Zheng, Freight Investor Services (FIS)

Contributed by Titus Zheng, Freight Investor Services (FIS)

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