Dry bulk freight market: The best is yet to come

Baltic Dry Index (BDI) has given the market participants a run of their money by staying at the 1,290 points consistently for most of the time after the Easter break before settling for a slide to 1,278 points on Wednesday, 19 April.

This phenomena rise may have to do with commodity rally seen in the earlier part of 2017, especially on the iron ore and coal prices. By end of February 2017, iron ore prices have seen its zenith for 2017 at $94-95 per mt. Later, the iron ore rally had translated to the rising capesize rates and pushed the overall BDI to hit above 1,000 points in early March.

Since then, the rally in freight rates has carried well into April after a peak of 1,338 points recorded in late March and was hovering around the 1,290 points till now. However on a closer look on the curve, one will realize that the rally is not smooth-sailing with bout of hiccups hampered by natural disasters and port closure.

“A brutal day for the paper market as rates came under pressure throughout the day,” commented a FIS FFA broker on the capesize market at Tuesday, 18 April 2017.

“This was a mirror image of the IOS which have collapsed since last Thursday and this along with rumours of ships being cancelled ex CSN due to a broken stacker only added to the market bearishness.” he explained.

To him, the iron ore market has slumped on the weight of supply overhang and high port inventory of Chinese ports that totaled around 131.44 million tonnes by Thursday, 20 April 2017. Moreover, the closure of Brazil’s Itaguai terminal on 15 April 2017 due to an accident had also placed a negative impact on the capesize market.

It was heard that four - five capesize bulk carriers were being pulled back to the charter market after an accident occurred at the terminal that injured two workers. Initially, the vessels were believed to be chartered for loading of Brazilian iron ores from Itaguai terminal. So far, Companhia Siderúrgica Nacional (CSN), the owner of terminal has made no announcement on the reopening of the terminal at the aftermath of the accident.

Due to these negative market news, the capesize rates had weakened after the post-Easter holidays with spot time charter average rates at $16,154, down $207 on Tuesday. Then, the slide continued with a decline of $630 of capesize rate to $15,524 on the following day.

The downward trend was carried on to the panama market as well, with rates of $12,916 recorded at 19 April 2017, down $71 from Tuesday.

“The pre-holiday optimism was quickly erased today on panamax paper with sellers present from the outset and having to chase a thin bid-side, particularly as capes collapsed,” opined a FIS FFA broker on the fall of panamax rates.

Supramax and handysize rates were in better hands with supramax freight rates achieving $9,741 on Wednesday, up $91 day-on-day, while handysize increased by $69 day-on-day to $8,327 on mid-week.

With the current iron ore rally placed into increasing scrutiny, there is market concern that the freight markets are having their best moment right before the expected plunge ahead. This market concern may be well-founded given that traditionally April is the start of construction activities in China and yet market failed to response in positive manner.

But well, the best is yet to come, given that there were a few market hiccups occurred in the month of April, from Cyclone Debbie to tighten of credit availability in China. Probably, the month of May will correct every ills that setback April and once again prove that the spring season is typical high demand for freight rates.

Posted 21 April 2017

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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