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Dry bulk FFA market: The only way is up

Dry bulk FFA market: The only way is up
After taking various big plunges into the deep, there is no other way for capesize market to go but up. Improved paper market sentiment on paper seems to provide the perfect ingredients for rebound but if there is a need for more cargoes on the physical scene for things to get more rosy.

“A general feeling that rates had finally stopped falling gave rise to some volume buying in the paper market as some short covering and opportunistic buying was evident,” said an FIS FFA broker. As such, the capesize 5TC contract increased from $6,305 on Monday to $7,185 on Wednesday - up 14% in the short span of days.

“It remains to be seen if the physical can actually move up from here but certainly the shift in sentiment was most welcome,” added the broker.

Buoyed by the stronger capesize rates, the Baltic Dry Index (BDI) rose to 859 points on Wednesday, up 29 points day-on-day. By mid-week, the index had seen a three consecutive day of rising rates since 7 July.

“Sentiment for the capesize market seems much better, since it has been at a floor for a while and it’s good to see the owners resistance [to fixing at lower rates] has paid off,” according to a shipowner based in Singapore.

Due to the optimistic outlook, Q3 rates are forecasted at $11,600 before reaching $15,500 in Q4. Going forward, the capesize market may improve further if ship scrapping steps up the pace in the latter half of the year. However, currently scrapping has experienced a slowdown as some shipowners are unwilling to part with their older vessels on the basis of improved market conditions.

On the other hand, the panamax market has yielded consistently better results, from a starting rate of $8,516 on Monday rising by $287 or 3% to $8,803 on Wednesday.

“With some improved grain activity further bolstering optimism and some stronger levels being reported for transatlantic fronthaul, we saw another day of gains on panamax paper,” said an FIS panamax FFA broker.

The same optimism was then shared by the supramax freight which found momentum as rates ticked up throughout the week - by mid-week, supramax rates were recorded at $8,118, up 2% from $7,948 recorded on Monday.

“Supramax paper saw rates push from the very start as Q3 was paid $8,800. Then, the prompt ticked up throughout the day as August and September packages traded around $9,000-$9,150 range,” added the Singapore-based FIS FFA broker.

Compared to the larger vessels rates, handysize rates experienced a more stable run with little movement as rates recorded $7,026 on Wednesday, little changed to rates of $6,927 recorded on Monday.

Freight rates in general may still contain the ability to surprise us as we move further into the second half of the year. The lack of fixing activity in the past week has provided a price floor as many trade participants saw little sense to fix vessels at those depressed levels. In the end, common sense and pragmatism finally prevailed with freight rates again pricing at reasonable levels - in the true spirit of free market economics and ripe for market pickings.

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