Dry bulk FFA market: Glowing optimism for freight rates
Dry bulk FFA market: Glowing optimism for freight rates
This week, capesizes have displayed a solid performance, thanks to active fixing in the Asia-Pacific regions and firming freight derivative rates. The capesize rally has resulted the Baltic Dry Index (BDI) to rise by 17 points or 1.22% to 1,413 points on Wednesday.
Due to the higher capesize fixtures in the Asia-Pacific regions, there was a reduction of vessels toward to the Atlantic and indirectly strengthen freight rates to a new high.
“We are now at the years high's for the December contract on Wednesday and the technical suggest that the upward momentum is starting to wane,” said an FIS FFA shipbroker.
He noted that the paper market gradually edged higher with the December contract changing hand numerous times at $18,850, the Q1 moving up toward 12,000 and the Cal 18 trading at around $14,325.
“An interesting end to the week is in store if the capesize rates continues in its journey to the moon,” he continued.
Due to the glowing optimism, the capesize 5 Time Charter Average saw a gain of $377 day-on-day to $22,468 on 22 November 2017, or up 3.6% as compared to Monday’s rate at $21,672.
The strong capesize rally can be traced to the active seaborne iron ore trade which China imported nearly two-thirds of the global seaborne iron ore market. The high consumption was related to the high steel production among the Chinese mills that accounted nearly half of the world’s steel output.
For instance, China produced over half of the world’s steel at 709.5m tonnes during the first ten months of 2017, according to the World Steel Association (WSA). The association estimated that a total of 1.41bn tonnes was produced during Jan-Oct period by the world’s 66 steelmakers.
On the contrary, panamax suffered a few slip ups this week, as market optimism began to wane on Tuesday due to sluggish physical market. As such, the prompt contracts have fallen around an average of $300 by the day closing with Dec trading down to $10,600 and Q1 printing $9,700 several times, further out Cal18 slipped to print $10,250-10,300.
By Wednesday, the tide began to turn for the better in the panamax market with some uptick activities seen in both basins. These have brought in the much needed stability on the panamax paper market with rates holding a steady range through most of the trading day on Wednesday.
On the end of the trading day, the panamax time charter average posted $10,277 on 22 November 2017, up $54 day-on-day and up $13 as compared to Monday’s rate of $10,264.For supramax, the paper market opened the week on a positive note and continued the trend toward mid-week with some strong pushes seen in Calendar 18 (Cal 18).
As such, Cal 18 ticked up trading up by $125 to $9,850 by Wednesday. In the meantime, the handysize market has a quiet week with time charter average slipping down by $18 to $9,107 on Wednesday.
Overall, the capesize market still shows more room for growth and some trade sources even speculate capesize rates to rally at least until the first quarter of 2018. However, FIS has one word of caution here - There might be some market pullbacks when the capesize index trades below $20,626 as this will increase the probability of a lower high forming and the index entering into a longer term corrective phase.
Posted 24 November 2017
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