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Dry Bulk Market: More slumbers ahead or a wake-up call?

Dry Bulk Market: More slumbers ahead or a wake-up call?
In a week dotted by various countries’ public holidays, the freight market found it hard to bounce back and witnessed further declines across the sectors.

The latest trade data from China certainly did nothing to lift the bearish sentiment with the official Purchasing Managers’ Index (PMI) indicated a growth of 51.2 in May, beating economists’ estimates. However, this level is similar to the April’s which was a six-month low, suggesting that the Chinese economy has slowed down over the months.

Next, the Caixin and Markit PMI hit an 11-month low to 49.6 in May, down 0.7 from 50.3 in April, indicating that China’s private manufacturing sector is still in contraction mode.

“Capes came under significant pressure this week, as Far Eastern holidays and the physical market gave no signs of life,” said a FIS FFA broker based in Asia. “The miners were absent from the market for the C5 route while sellers took the opportunity to lean on the market with no real resistance from the bid side,” the broker added.

Capesize spot rates began the week fairly weak at $11,709 on Monday before tumbling down by $656 or 5.6% to $11,053 on Wednesday. The market inactivity has also spread to Panamax spot rates which first started the week at $6,795 then slumped to $6,658 by mid-week, down by $137.

“We witnessed further declines across the curve today on panamax paper with the lack of activity off the underlying and the sell off on capes further fueling the bearish tone.” the broker added.

Likewise, the supramax and handysize market were in a downward trend just like their larger counterparts. Spot rates for supramax opened the week at $8,342 before closing at $8,105 on Wednesday, down $237, while handysizes slipped by $213 to $6,620.

“Once again with the physical outlook still deteriorating we saw sellers having to chase a thin buy side as prompts remained under pressure,” said an FIS supramax broker. “Further out we saw some marginal losses but ultimately support remains just off last done”.

Demand for steel, iron ore and coal has been lacklustre for a while, leading to even weaker freight market with the Baltic Dry Index (BDI) barely recovered from the slump off the 1,000 mark last week.  By Wednesday, the BDI had fallen to 878 in a long slide since the index peaked at 1,294 in April 2017.

With most economic indicators pointing to hard landing in the longer term, the situation could take a turn for a better with ‘a new impetus’ of demand according to Mark Mobius, executive chairman of Templeton Emerging Markets Group who cited China’s One Belt, One Road as one of these demand drivers.

“If you look at Chinese imports of iron ore, it’s almost a straight line, continuing to go up,” he said, adding, “If the One Belt, One Road program proceeds, there’ll be continuing demand.”