Dry bulk market: Let the good times roll

The new year has begun in great optimism and rolling on the positive mood of the previous year. The larger vessel classes are expected to lead the charge as the freight market heads towards recovery- with players hoping this is a new beginning rather than another false dawn.

Recent polls taken by the Singapore Exchange (SGX) suggest that over half of the participants questioned believe that 2017 will be a year of “moderate” improvement for the dry bulk freight supply/demand fundamentals. However, around 28% of the participants polled believed that the freight market will remain relatively unchanged in 2017 compared to 2016, thus demonstrating the market’s mixed outlook.

Industry participants are most hopeful for recovery in the Capesize freight market, with 39.4% expecting this vessel class to have strongest performance in 2017, followed by 34.4% for Panamax, another 16.4% for Supramax and 9.85% for Handysize.

Clearly this positivity has drawn support from the improvement in the Baltic Dry Index (BDI) which rose by 16 points day-on-day to 969 points on Wednesday. The increase has also been reinforced by other vessel classes – but especially the larger ones.

“Capesizes extended their bullish open to the year with both physical and paper seeing gains,” said a FIS FFA broker. He credited the gains partly to potential cyclone disruption in Australia, weather delays in China and the lack of prompt tonnage in the Atlantic for the big push on both the paper and physical markets.

By midweek, the spot Capesize time charter average rate had reached $11,346, up 11% as compared to the rates at the beginning of the week. But smaller vessels like the Supramax and Handysize found their rates slipping slowly since the start of the week.

For instance, freight rates for Supramax ended Wednesday at $8,572, down 2.71% day-on-day, while Handysize rates settled at 7,688 on 4 January 2016, down 3% day-on-day.

The majority view is likely to be that many industry participants view 2017 as a turning point with some improvement giving way to consolidated gains in future years. The SGX poll result clearly reflects this sustainable improvement in freight rates, with 12% voting that the freight market will be better in 2017, 28.7% choosing 2018 but most voting for 2019 as the year with best prospects.

Whether 2017 offers a stepping stone to better days remains anyone’s guess, but FFA traders will continue to look for opportunities whether in an up or down market, as the law of nature dictates that those most responsive to change – not necessarily the smartest - will evolve and survive. Until then, let the good times roll.

Posted 06 January 2017

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Contributed by Titus Zheng, FIS Singapore

Contributed by Titus Zheng, FIS Singapore

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