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Dry bulk FFA market: Back to the top?

Dry bulk FFA market: Back to the top?
Like the legendary phoenix, the freight market has been reborn this week, with the Baltic Dry Index (BDI) rising from 884 points to 929 points, breaking the 900-barrier in the matter of days.

The sudden surge can be traced to better capesize rates that benefited from a buying spree in iron ore and coal in the market.

Capesizes rates began the week somewhat sluggishly - partly due to the public holiday in Singapore on Monday. Rates then took off from $8,094 on Monday before rising to $9,489 on Wednesday, up by 17% in mere two days.

“Some traders felt that market sentiment had changed and directionally we could see more gains in capesizes this week,” said a FIS FFA broker.

The freight uptick found support from Chinese optimism in iron ore market with the Chinese premier, Li Keqiang’s recent speech which pledged that the world’s second largest economy is on track to achieve its goal of 6.5% growth for 2017.

Picking up on the Premier’s words, iron ore futures and rebar contracts soared in paper markets, while mills engaged in a series of buying spree for physical cargoes. This coupled with the good steel margins of around RMB 800-1000, fueling the purchasing spree of the seaborne iron ore and coking coal which boosted tonnes-miles in return.

Meanwhile, some strength was seen in Panamax rates this week, with levels rising from $9,174 on Monday to $9,212 on Wednesday – though rates did seem to be affected by news of a proposed coal import ban on second level Chinese ports.

“The panamax market came under pressure on Tuesday as the physical freight market activity slowed down upon mixed reports on Chinese port restrictions that fueled the bearish tone,” added the FIS broker.

Chinese authorities announced on Tuesday that they will impose a possible ban on imported coals at certain ports from 1 July onwards. Most of the ports affected are among the smaller facilities found in southern China, such as Fujian province and the announcement did not specify whether the ban was meant for thermal or coking coal.

China’s northern ports would be mostly unaffected by the proposed ban but traders are concerned about the higher costs from re-directing the shipments to level one ports from level two ports.

Supramax rates, however seemed unaffected by the proposed ban and clocked $8,282 on Wednesday, from $8,210 on Monday.

“Supramax paper felt selling pressure today as rates slipped throughout Wednesday,” added the broker. “July opened the day trading $8950 and eventually reached a low of the day $8,550. Q3 followed suit as we saw trading in range $8,800-$8,600.”

Small gains were also seen in the handysize market with rates recorded at $6,707 on Wednesday, up 1.2% from $6,627 on Monday.

The last time the freight market experienced a sudden spike from a speech was probably Donald Trump’s mention of US plan for infrastructure investment over the next decade.

Now, the freight market has clearly found another rallying point in form of China’s Li Keqiang. But the question remained on how long the optimism will last, before market fundamentals sink in.

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