Dry bulk FFA market – Riding the waves

Like Hokusai’s Great Wave, the freight market has its ups and downs, and this week we are seeing a downside – perhaps before another upsurge. As such, the Baltic Dry Index (BDI) fully captured the market sentiment and fell to 1,222 points on Wednesday after hitting a four-month peak reading of 1,266 on Monday.

This marginal adjustment was seen across the freight rates as well, as participants took a breather – and profits – from the previous week’s rally.

“Capes slid on Tuesday as more offers came in on both physical and paper markets,” reported a FIS FFA broker.

The capesize freight market saw September trade down to a low of $16,700, down $600 day-on-day before finding buying support and holding around $17,000. Then, Cal 18 took the hit too and traded down at $13,350 compared to $14,300 of last week. Finally, Q4 v Cal 18 traded just below $3,000.

“The Atlantic remains relatively tight on the nearby and a few fresh cargoes could see a quick recovery of numbers in the coming day or so,” commented a London-based FIS FFA broker.

However, the ‘recovery’ did not come instantly with September trading at a significant discount to the index after posting a loss of $800 to $16,250 on Wednesday. Thus, the capesize 5 Time Charter Average too dropped by $860 day-on-day to settle at $17,974 on Wednesday.

“With the long weekend [in the UK] fast approaching, it’s hard to see how the downward trend will be reversed this week but stranger things have happened in the world of capes. Watch this space,” concluded the FIS FFA broker.

Optimism revolves around robust steel demand in China partially driven by Chinese authorities’ ongoing effort to reduce steel capacity and achieve output cuts for environmental reasons. Such policies have brought the predictable restocking of raw materials months ahead of schedule and saw sudden hikes in freight rates in the past weeks. In short term, the rates may still rally with these policies in place.

Declines were seen too in the panamax paper market, largely consigned to the prompt contracts with both August and September breaking the $10,000 support to print $9,900 lows on Wednesday.

“A worse than expected index saw sellers probing the day-lows in the trading session but we remained steady to the close.” said a FIS FFA broker. The Panamax Time Charter Average then ended at $10,510 down $268 day-on-day at Wednesday, down $302 from $10,812 posted on Monday.

By contrast, the supramax segment held the downward slide better posting $9,556 on Wednesday, up $111 day-on-day and a gain of $210 from $9,346 recorded on Monday. The rise was driven by bumper grain shipments and better soybean demand. Handysizes recorded $6,883 on Wednesday, up $27 day-on-day and up $57 as compared to Monday’s time charter average rate of $6,826.

Overall then, the freight market has experienced a price correction this week. Despite this, the market may still pull a surprise or two in the near term. But the surprise will be limited if the market simply brings forward the usual shipping peak period of October- November and plugs it into August-September. Thus, the real problem will be what is going to happen in the months that were brought forward and whether the market is ready for this new trend.

Posted 25 August 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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