Dry bulk market: FFAs rise amid escalating US-China trade tension

With a single tweet from President Trump, the flames of the US and China trade war had rekindled and rattled the global economy.

Political instability among the US and China did shake the market confidence and prompt falling freight rates. However, the falling rates were also accelerated by lack of cargoes from Brazil after a court ruling reversed the restart of Vale’s Brucutu mine with capacity of 30 million tonnes of iron ore per year.

Limited seaborne iron ore cargoes from Brazil

Iron ore fines shipment from Vale had recorded at 55.41 million mt in Q1, down 22.2% on-year, due to lower production level which fell by 11.1% to 72.87 million mt.

Rainy weather in Brazil’s Para state and dam rupture in Minas Gerais state contributed to the falling iron ore productions and caused Vale to declare force majeure on some sales contracts.

Furthermore, the market participants were concerned about supply tightness in Brazilian fines after a court decision to close the 30 million mt per year, Brucutu mine owned by Vale.

Rising FFAs boost freight rates

Despite the gloom market outlook, there are some fresh cargoes from West Coast Australia that lifted freight rates.

According to trade sources, the freight rates were mainly driven by the booming Capesize Forward Freight Agreement (FFA) market on Wednesday along with resistance from some shipowners.

The rise baffled some market participants as the month of May is usually not a good month for Capesize market, but rates are higher this week.

As such, a strong finish was recorded on Thursday, 9 May 2019 for Capesize FFAs where the time charter average rose $764 on-day to $10,708.

Uncertainty clouds Panamax market

The Panamax market seemed more vulnerable in the escalating trade war between the US and China. Since Monday, Panamax paper contracts had slipped into negative territory with increasing volatility.

By Thursday, more anxiety appeared in the Panamax market over the failing trade concession between the US and China. A sell-off occurred in May and June contracts to $9,500-$9,550 support, while the Q3 contract looked to test the $10,000 level.

Despite the selloff, the Panamax time charter average managed to hold out to a gain of $39 on-day to $9,548 on Thursday.

Smaller vessels come under pressure

Throughout the week, Supramax and Handysize paper market were much quieter in comparison to the larger vessels as trade participants come back from a long holiday.

Supramax paper market struggled to find any momentum until late in the week where firmer supports were found. By Thursday, the Supramax time charter average reached $8,630, up $61 on-day, while handysize time charter average recorded at $5,716, up $4 day-on-day.

Posted 10 May 2019

© 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, Freight Investor Services (FIS)

Contributed by Titus Zheng, Freight Investor Services (FIS)

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