Dry bulk FFA market - Sunshine for all

The summer in 2017 has not been your typical “sun and beach” season where traders and brokers depart for their vacation causing the market to slump as activity falls to a minimum.

Freight rates are climbing as demand rises in contrast to the usual summer lull. The Baltic Dry Index (BDI) also went against the norm and recorded a high of 1,207 points on Wednesday.

The higher rates are due to the up-cycle seen in construction-linked commodities such as iron ore and coking coal that have fueled the seemingly insatiable Chinese steel making demand. Over the summer, Chinese mills have restocked ahead of schedule in anticipation of a 50% capacity cut expected in November.

This earlier-than-expected stockpiling disrupted the usual shipping cycle, driving another peak for the BDI from the previous 1,300s level recorded in April 2017.

Clearly, increased iron ore movements have powered the current rally in freight rates for the larger vessels. “Capesizes rallied hard on Wednesday morning after better fixtures were reported on both basins,” said a FIS FFA broker. “August then traded up to $16,500 and September pushed up to $18,900 after having strong selling resistance broken at $18,000 and $18,500 level,” he continued.

As such, the capesize 5 Time Charter Average spot rates went up by $1,117 day-on-day to $18,187 on Wednesday and saw a gain of $2,016 or 12% since the starting level of $16,771 posted on Monday.

Most of the gains were seen in the August and September contracts, reflecting market anticipation of the stricter environmental measures and capacity cuts to be imposed by Chinese authorities on the steel mills during the winter months.

This sentiment was further reinforced by Hebei province’s pledge of fast-forwarding its annual steel capacity cut of 31.86m tonnes by the end of September 2017 rather than by year-end. The shine only came off the rise on Thursday when traders decided to take profits, shredding some of the gains made in Asia and London morning sessions.

In Panamaxes too, the gains focused towards the August and September contracts and the time charter averages settled at $10,494 on Wednesday, up 3% from $10,188 recorded on Monday.

“We witnessed some sharp gains at Wednesday morning session on panamax paper with good volume changing hands on the prompt contracts once again,” said a FIS panamax FFA broker. “Aug pushed up to $10,300 while Sep and Q4 printed highs of $11,075 and $11,100 respectively,” he observed.

Supramax paper continued to follow the trend of the larger sizes as rates ticked up throughout the week. “Sep was trading in $9,800 -$10,000 range, while Q4 was trading $9,900-$10,000 range and the Cal 18 started to finally move with Q1 18 trading up to $8,400 and the Cal 18 $9,200,” said an Singapore-based FIS FFA broker.

Thus, the supramax TC average increased by 2.7% to $8,763 on Wednesday, from starting rate of $8,531 on Monday. In the meantime, handysize rates remained virtually static at $6,793 on Wednesday, after slipping $12 from $6,805 on Monday.

The freight market continues to enjoy the red-hot summer fuelled by sizzling-hot steel demand. Whether the rally is based on fundamentals or is the market hype identified by China’s steel association, it is clear that the shipping cycle has moved its peak season ahead of schedule. That anomaly may soon be corrected, but for now players seem happy to bask in the profits.

Posted 18 August 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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