Dry bulk FFA market: Freight market takes a Coffee break

After weeks of spectacular hikes, the freight market has bowed down to the law of gravity and seen corrections across rates.

This downhill movement was captured in the Baltic Dry Index (BDI) which reached 1,694 points on Thursday, 9 Aug 2018, after the peak of 1,773 reading seen on Monday, 6 Aug 2018.

The slip up may be due to market corrections after weeks of strong gains, plus some market participants took a break on Thursday due to National Day holiday celebration in Singapore.

Thus, the Capesize market came under pressure on Monday with the Capesize 5 Time Charter Average started the week at $27,283 before sliding down to $25,667 on Thursday, down almost 6% before the close of the week.

“The discount for the August Capesize contract implies that the spot rates will fall but cautious buyers are still waiting on the sidelines to pick up anything that looks cheap,” observed a FIS Forward Freight Agreement (FFA) broker.

In the meantime, some market participants viewed the dips as a short-term breather before a rebound. This belief held fast on the strong fundamentals of the rising demand of iron ore and steel in China.

According to the General Administration of Customs, China had imported a total of 89.96 million tonnes of iron ore in July 2018, up 8% quarter-on- quarter and up 1.5% from 88.66 million tonnes July last year.

Moreover, the steel margins remained high at near-record levels around RMB 1,100 per tonnes, which prompted more Chinese mills to import high quality ores to improve productivity and comply with stricter environmental regulations.

Meanwhile, the Panamax market was not immuned to the slip up as well and began the week on a slow pace before witnessing an uptick on Wednesday.

“An uptick activity off the underlying rather than any real improvement in rates coupled with a firmer Capesize market saw some optimism returning to the market on Wednesday.” said a FIS Panamax broker.

He later noted that the uptick served little purpose except in slowing down the rate of decline in the index. As such, the Panamax Time Charter average posted at $10,802 on Thursday, down $128 day-on-day and down $560 from $11,362 recorded on Monday.

On the contrary, the Supramax market saw steady gains throughout the week with time charter average posted $11,152 on Thursday, up $29 day-on-day and up $86 from Monday’s rate at $11,066.

“Supramax paper saw some improved buying across the curve on Thursday albeit on limited activity as sellers thinned out probably due to a public holiday in Singapore,” commented a FIS Supramax broker.

Later, he noted that the Supramax Aug contract traded at $11,300 while Q4 and Cal 19 traded $12,250 and $12,225 respectively.

Meanwhile, the Handysize market remained quiet with the time charter average closed at $7,943 on Thursday, up $33 day-on-day.