Dry bulk FFA market: Paper under pressure as physical perks up

It could be that paper traders read the comments of Sokje Lee of JP Morgan who suggested this week that rates could remain low for years to come. If so, physical players should be just as worried.

“Don't look for an increase in freight rates. Instead, the way to make money is to save costs,” he said. Low rates are a particular threat to Chinese shipbuilders whose costs have tripled in a last decade and are higher than those of South Korea and Japan.

Capesize paper came under selling pressure despite talk of stronger fixtures in both basins and gains on the indices. Sadly this did little to bring in fresh buyers which left many asking whether the optimism was due to die out more quickly than expected.

Despite physical continuing its upward run, paper decided that it had not doing enough to justify the contango especially for the November contract. As a result, Cape paper sold off sharply on Thursday with buyers left to catch falling knives.

Panamaxes saw a persistent trend with prompt sold off early, Q4 floundering on weak demand and ample tonnage. Further out sellers were less aggressive but the weight still favoured the offer side with few pockets of support.

The week ended with a little more enquiry and prompt contracts fizzing up with levels $100-150 better on average, before becoming more rangebound.

Supramaxes were much less interesting with rates slowly coming off as the market softened. Despite the numbers seen on the larger sizes it took some by surprise that weaker ones were seen here.

A little more interest on the bid side as the week ended but with limited activity. Some support on the front and the back of the curve was a little more static as the day drifted to close.

Contact FIS: http://freightinvestorservices.com/freight-derivatives/ffas/