Dry bulk freight market: BDI falls off the 1,000 mark

“Nervousness” has set into the freight market, sending the Baltic Dry Index (BDI) to fall off the 1,000 point mark again.

The BDI had slumped under 1,000 points to hit 960 points on Wednesday, 17 May 2017, down 20 day-on-day. The decline had been ongoing for almost a month since 18 April 2017 at 1,294 points.

The cause for this “nervousness” might draw for China’s slowing construction activities whereas the shipments of iron ore and coal were at lower demand. As such, capesize rates have plunged since the start of the week, from $12,385 on Monday to settle $11,737 on Wednesday, dropping 5% in matter of days.    

“An incredibly nervous capesize market was seen on Tuesday (17 May 2017),” observed a FIS forward freight agreement (FFA) broker.

According to him, the capesize rates rose first as rumours hit the market that the VLOC conversions had been rejected by the Korean registry. However, the optimism soon dissipated as there was no forthcoming confirmation on the matter.

“Essentially the paper curve is left flat day-on-day while the physical market, too, seems to have bottomed out.” he added.

Similar story was seen in panamax rates as well with rates recorded at $7,445 on Wednesday, slipping 5% from starting position of $7,870 on Monday.

“The lack of enquiry in both basins continues to fuel the bearish sentiment on panamax paper with little respite as the index continues to edge lower,” commented a Singapore-based FIS FFA broker.

Some interim stability was seen then on Tuesday before it was tested again at the morning trading session of Wednesday. Eventually, the panamax rates had hunkered down after another gloomy index saw sellers giving up their positions with declines witnessed across the curve.

It was all not rosy for the supramax market as well, as rates retreated to $8,733 on Wednesday, down $71 from $8,804 on Monday.  

“We witnessed further declines across the curve on supramax paper with Q3 trading down to $8,300 low while further out we came lower on limited trading as buyers seemed happy to hold off.” observed a FIS FFA broker on the Monday session.

In the meantime, he noticed that the sellers seem to have the habit of finalizing the deals near toward the close despite the flat index and sharp discounts presented at the start of trading sessions.

On the contrary, little changes were seen in the handysize market with flat rates starting at $7,370 on Monday before scaling down to $7,313 by mid-week.

Despite the general bearish market outlook, there are also plenty to look up as well. For instance, there is an iron ore price rally at the moment, thanks to the upticks in Chinese rebars and futures market.

Thus, analysts from Credit Suisse had forecasted the price rally to sustain for the months ahead and predicted a price of $70 per mt for Q3. The upgrade in forecast also highlighted that the Chinese authorities will maintain for a “strong and stable economy” before the 19th Party Congress meeting later in the year.

Moreover, the seaborne coking coal prices have fallen to a “sensible level” or near to the pre-Cyclone Debbie level, which was way below the China’s domestic coals prices. Thus, this price difference might arouse the buying interests of the Chinese mills to import more cargoes and lift freight rates in near term.

Posted 19 May 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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