Capesize

17950

Sep-17
0.00 0.00%

Panamax

11175

Sep-17
225.00 2.05%

Iron Ore

76.5

Sep-17
0.85 1.12%

Sing 380

278.25

Oct-17

Coking Coal

208

Sep-17
0.00 0.00%

Nola Urea

212.5

Sep-17
0.00 0.00%

Dry bulk FFA market: Ground Zero or a long and winding road?


long_and_winding_road

By Titus Zheng, FIS Singapore

The Baltic Dry Index (BDI) continues to be battered by falling freight rates, dragging itself through another week of sub-1000 point action.

Hardly living up to the dry bulk market’s “year of recovery” scenario, BDI has retreated from its zenith above 1,300 points in April 2017 and was back to 934 points on Wednesday, well below its starting point of 953 points recorded in January 2017.

Reaching ‘ground zero’ so early in what should be the middle of the seasonal high driven by Chinese construction activities may be discouraging for trade participants. But while it might mean that the slowdown in Chinese economy is very real, it may simply imply that the summer construction activities have yet to hit full throttle.

“It’s way too early to call the next direction but the lack of appetite to cross the spread, suggests that the whole paper market is in limbo waiting for fresh news,” reported an FIS Capesize FFA broker.

Struggling with the tone of market inactivity, capesize rates stood at $12,177 by midweek, down $281 or 2.2% from the starting point of $12,458 on Monday. Going forward, capesize rates could resume this downward slide in view of the upcoming Chinese public holidays later in May and early June.

Public holidays affected European traders this week. “With holidays coming up over the next few days, the Capesize market has felt like being ringside at a one-sided boxing contest,” added an Asia-based FFA broker.

Following the lead of capesize rates, the panamax rates also retreated to $6,823 on Wednesday, down $49 as compared to $6,872 recorded on Monday. A similar story was in the supramax market which dropped to $8,577 on Wednesday 2017, down $90 from $8,667 at the start of the week, while handysize rates dropped by $210 or 2.8% to $7,057 on Wednesday.

Despite the lethargy, overall, the dry bulk market is still in a better shape than last year’s doldrums. A sustained recovery of the dry bulk sector may not involve many quick fixes but rather resembles a long and winding road ahead.

The 2017 fundamentals are improving, in particularly on the demand side, with dry bulk trade slated to grow about 2% during this year. The key drivers of the growth lie heavily on the shoulders of seaborne iron ore trade which is estimated to grow by 4% in 2017.

On the supply side, ship scrapping has gained momentum over the past years, with around 28.8m deadweight of bulk carriers recycled in 2016 alone. However, 2016 demolition volumes were still 4% lower when compared to the 30.5m deadweight removed from the fleet in 2015.

Another positive is that India is stepping up its game on steel production which may drive more imports of seaborne raw materials, thus boosting tonne-miles that support freight market earnings. According to the World Steel Association, India’s steel production grew 9.3% year-on-year in March 2017, and the country currently accounts around 9% of total global output.

To make high quality steel, India is expected to import increased volumes of high-quality coking coal from Australia. Currently, its imports of Australian coking coals are almost on par with demand from China and Japan, accounting around 20-25% of Australian coking coal exports on monthly basis.

For now though, as summer beats down on London, an FIS broker summed up what the long road to recovery could mean for the dry bulk market. “It will be a long hard summer for all concerned if the market stays in this rut but at least for the time being we have sunshine, cricket and a bottle of Provencal Rose. Bottoms up!”