Last week, Cyclone Debbie made landfall on Australia’s Queensland coast and continued to pound the inland areas, leading to major flooding. The downpours damaged the Goonyella railway line which links nearly 50% of the region’s coal production areas to its export ports. Coking coal supply was especially hard hit with disruption to shipments expected over the next month, also affecting thermal coal exports.
By some estimates repairs to the rail network will take five weeks, with UBS estimating the loss of nearly 5% of global supplies as miners including BHP Billiton, Yancoal’s Middlemount, Qcoal and Jellinbah Group all declaring force majeure for their affected mining operations.
Initially the market deemed the outages negative. The Baltic Dry Index dropped by 2.55% day-on-day to 1,223 points on Wednesday, its biggest daily percentage fall in the two months since 7 February.
Rates on the cape 5TCs contract scaled back from $18,259 on Monday to $16,149 on Wednesday and $15,698 on Thursday. The lull in rates also coincided with China’s Qing Ming festival holiday which further muted market activities.
During this period of market uncertainty, some shipowners preferred shorter voyages, anticipating that the decline would be short term and an uptick is expected when the Queensland supply chain is restored and Chinese participants return for the seasonal construction period. “It feels as though we will only be able to gauge the true tone of the market once the physical players return,” said an FIS FFA broker on the capesize desk.
However, Thursday also saw a switch in sentiment with a fair index and an influx of fresh cargo seeing afternoon offers paid down the curve with paper rising sharply, with May-June trading up to $16,750 and Q3 to $16,500. These levels brought some hedge sellers to the market resulting in an overall positive day for the futures – and potentially a turning point for physical.
“Optimism remains for the Q3 contract onwards with offers difficult to tie down,” said the FIS FFA broker.
Similarly, panamax freight rates opened on a softer note at $11,065 and stayed relatively unchanged at $11,002 on Wednesday. By Thursday though, the trend was bullish with new highs seen as Q2 pushed through $12,000 - the previous stumbling block - to trade as high as $12,400 before running into some resistance.
The supramax time charter average held at $8,955 on Wednesday after starting the week at $8,956 but Thursday saw a strong push on steady physical, with EC South America looking stronger combined with bullish sentiment from the larger sizes, with April trading $9,500-9,800 range. handysize rates meanwhile edged slightly higher on Wednesday at $7,967 as compared to $7,925 on Monday.
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