As a result, the Baltic Dry Index remained fairly flat in the week, hovering near the 850 points mark, before settling 847 points on Wednesday. However, it seem that an uptick could be around the corner with the rebound on capesize market.
“There is life in the old dog yet,” said a China-based FIS freight forward agreement (FFA) broker, referring to the capesize freight market. “After a few weeks of deteriorating rates, the capesize FFA market has turned and firmed all down the curve,” she observed.
According to the broker, capesize Q3 has moved above 12k and recorded a high of $12,200 at one point, while Q4 printed $15,500 on Thursday. By contrast, capesize rates were embattled since Monday’s spot average rate of $8,798, which dropped by 12.7% to $7,685 on Wednesday.
The weakness of capesize rates lies in iron ore prices that have since fallen from the zenith of USD95/mt in February to the current level around USD56/mt. Against this background, the marginal iron ore business ex-Chile/Peru has become uneconomical and therefore the longer tonne/mile business has been adversely affected.
Thus, for most of the time this week, panamaxes have been holding the fort after pulling a string of gains since Monday. As such, average Panamax rate began the week at $7,886 then finished at $8,570 by Wednesday, booking a gain over 8.6%.
“The tone for panamax market remains upbeat with further gains looking likely at this stage,” added the FIS FFA broker.
The strong panamax market can be traced to a buying spree for seaborne coking coal initiated by Chinese traders. On Wednesday, it was heard that at least five spot trades changed hands for delivery to China.
The trades were deemed as “panic buying” by some participants as the China-based majors are estimated to cut their output by 13-14m tonnes through the adoption of shorter working days for coal miners.
The higher rainfall in China was also one of the influencing factors in the majors’ decision to reduce coal output but one source claimed that the curbing of coking coal output was used as a method to support spot prices in the near term.
Besides coking coal, panamax rates have benefited from the buying spree on grains markets, where weather scares are driving up grain prices and futures. These buyers’ behaviors may trace back to lower than expected yields of winter wheat in the US plains and poor growing conditions for spring wheat, while hot and dry weather is being reported in Western Europe, China and the Ukraine as well.
With panamax holding the fort, smaller vessels booked gains too during the week, with supramax hiked to $7,932 on Wednesday, up 1.66% from $7,805 on Monday. Similarly, handysize posted a gain of 1.62% to $6,490 on Wednesday from $7,805 recorded on Monday.
At the moment, panamaxes have stolen the limelight, with firm gains and good market outlook, but watch the capesize market too, which might yet enjoy the dog days of early summer.
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