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Dry bulk FFA market: We’re still worth one more try

Dry bulk FFA market: We’re still worth one more try
In a global economy that is daily threatened by protectionism and digitalized disruption, is the freight market that old-fashioned bastion of steel, coal, iron ore and grains still worth another shot as we move into month two of the first quarter?

Perhaps still feeling the hangover effects from the just-ended spring festival, the Baltic Dry Index (BDI) refused to bounce and fell to 702 points on 8 February, a straight if small decline from the starting point of 702 points on Monday.

The decline runs counter to the usual post-Lunar New Year boost supported by the return of Chinese traders and the subsequent restocking of commodities from their week-long holidays. Most likely the market has been reined in by India’s decision not to remove its import duties for coking coal and scrap during its national budget convention for 2016-2017.

In the meantime, the country has also extended anti-dumping duty for another two months on cold-rolled flat steel imports from four countries including China and South Korea.

With these duties in place, it is easy for the market to stop believing in an uptick that would carry on the positive tone from the end of 2016.

Capesize spot rates have slid by 19% from starting position of $6,849 to $5,538 by 9 February, hardly benefiting from any bounce back. However there are positive if contradictory signs from paper and physical markets.

“A clear out of tonnage in both basins today, although the rates fixed were at lower levels and this led to a sell off on the paper,” explained an FIS FFA broker.

With stronger fixing rumoured on physical it was a volatile week’s paper trading with the cape March contract printing as low as $6200 and high of $7500 before closing at $6800 on Wednesday. As the week ended, capes were bid up in Asian hours which then continued firmer European open. Despite the re-ordering of tonnage the tone remains weak.

However, better prospects were seen in other freight markets with supramax and handysize remaining impervious to the slide in rates. supramax rates remained virtually unchanged at $6,951 during the week, while handysize rates then saw good support throughout the week to finish at $5,484 on Wednesday.

Panamax rates, probably best mirrored the post-Lunar New Year boost with healthy gains on daily basis to $7,480 on Wednesday. The increase has closely followed the harvest seasons of soybeans that drive up the rates in the South America region. Both panamax and supramax were trading firmer again on Thursday morning, though neither had broken resistance.

So with this broadly positive tone, the freight market may be whispering, “Don’t give up on us” just yet. Of course, traders have the right to do exactly that, with the memories of last year’s Q1 and Q2 still painfully fresh in the mind. This quarter is far from over but on the basis of this week’s performance the market could be saying: “don't make the wrong seem right, the future isn't just one night…”

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