Dry bulk FFA market - Charging back with a vengeance

After a wild bear chase last week, the bulls came charging back to drive freight rates back up again toward the 1,000 points level on Baltic Dry Index (BDI). Spearheading the bull charge were capesize rates which totally reversed course from last week’s bearish tone into a dash forward this week.

“Last week at various stages in our commentary we had bulls, bears, tardigrades and naked mole rats. On Tuesday, we have the complete set. The bulletproof, indestructible tardigrade of a capesize market came roaring back,” commented an FIS FFA broker.

The capesize 5 Time Charter average bounced from $9,775 on Monday to $11,568 on Wednesday, up $1,793 or 18.3% in the span of three days.

“The bulls were out in full force as both oceans saw rapid rises with the C5 fixing over $6.40 and the C3 at close to $14.00 per mt,” the broker observed.

The exuberant capesize rates coincided with an iron ore rally that broke the $70 per mt barrier this week due to robust steel demand. However, some market trade participants raised concerns as to whether support for iron ore above this level is sustainable.

Barclays analysts deemed the rally a temporary factor and believe that prices are likely to drop to a mid-to-low $50 per mt level by 4Q, with marginal iron ore producer support at $40-45 per mt.

On the back of this temporary gain, capesize rates also ran into fears of a short-term retreat in near term, but for now, rates are feeling little effect of the negativity .

“Further gains are expected in the capesize physical market. Although the paper market has already priced this in, but it is hard to see where any weakness will come from in the short-term,” added the broker.

Strong capesize rates left their mark on the panamax time charter average which opened at a firmer note at $8,765 on Monday before settling at $8,958 on Wednesday, recording a decent rise of 2.2%.

“The panamax physical market seems to have turned a corner prompting further short covering,” said an FIS panamax broker.

August seemed to have found a level at $9,500 while Q4 saw good volume changing hands inside the $10,000-$10,100 range. Further out the market saw some fresh support on the deferred contracts at $9,000.

Smaller vessels, however did not share the joy, witnessing a jump of freight rates at the start of the week before declining.

“Supramax paper was subject to an early initial push with August trading $9,300 and Q1 7,850. However with limited activity we sat at these rates for most of Wednesday with little change.” said an FIS supramax FFA broker.

The supramax 10TC index then went into a disappointing slide at -$77 and -$108 on the derived 6 TC to settle at the spot supramax time charter average of $8,685 on Wednesday.

Finally, the handysize rates remained stagnant throughout the week with TC average started at $7,267 on Monday before ended at $7,148 on Wednesday, recording a loss of $119.

In some senses then, the week’s freight rates resembled the bulls of Pamplona, full of fighting spirit, unpredictable and aggressive in nature. Thanks to this charging mentality, the BDI recorded 993 points on Wednesday, just a whisker away from the cherished 1,000 mark last reached in May.

But like all bull runs, there might be stoppages and injuries along the way and let’s hope no one is gored during the charge.

Posted 04 August 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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