If the downward correction persists, the question will be how much freight rates are affected and move with the price move or whether the freight market can continue to defy bearish sentiment. To judge from the early results, the price fall was a signal for more fixing as the week came to a close.
The capesize 5TC index slid by 4% since Monday from $18,080 to $17,292 on Wednesday. The price decline reflected the lacklustre fixing activity during the week as well as lower seaborne iron ore demand.
The fall is awkwardly timed since the start of Q2 should be the start of higher seasonal demand as construction activity intensifies in China, prompting more imports of iron ore. It is likely that the restocking had gone too well during first quarter – bringing port inventory levels to over 130m tonnes.
In addition, heavy weather conditions off Australian loadports also disrupted capesize shipping activities on the Western Australia to Qingdao route. As such, the Pilbara Ports Authority issued a cyclone warning at Port Dampier on Wednesday.
“The passing cyclone not only slowed down activity but created an air of uncertainty which some felt would lead to continued negative sentiment,” added the FIS FFA broker.
However by Thursday, capesize paper rates had rebounded. In the early session there was little physical data to justify the move but by the afternoon details of better fixtures hit the airwaves. The Pacific was quieter thanks to the cyclone but the transatlantic remained very solid with the trip out via Brazil particularly firm.
Panamax freight rates have also been gaining ground steadily and might see further upturn, driven on by robust soyabean demand in China. For instance, the panamax TC average began the week at $8,875 before closing at $8,998 on Wednesday, booking a gain of $123.
“With the emergence of a few more Atlantic cargoes, lending further support to the panamax market and the index flattening out, we saw continued appetite from buyers across the curve.” said the FIS FFA broker.
It’s possible that panamax freight rates could see continued support into the middle of Q2 due to the strong agribulk demand from China.
Meanwhile, supramax freight rates remained virtually unchanged through the week, recording $9,245 on Monday then $9,289 on Wednesday. In contrast, handysize freight rates saw steady gains throughout the week, posting $7,573 on Wednesday from a starting point of $7,499 on Monday. Despite the gains in smaller and midsize ships, the overall Baltic Dry Index (BDI) dipped by 10 points to 1,190 points on Wednesday.
Whether China’s steel demand rally will sputter out remains to be seen, but as the proverb goes; “a journey of a thousand miles begins with a single step”, thus it may be too early to judge which way the market will go in the near term.
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