FFA Review – Last summer hurrah for freight rates

last summer hurrah


This week has begun with a blast as the Baltic Dry Index (BDI) reached a three-year high to 1,503 points on Monday before plunging down toward the 1,429 by mid-week. The short-lived joy reminisced a last summer hurrah as freight rates made the final cavalry charge just before China’s Golden holiday from Oct 1 till Oct 8, where rates are likely to lie low throughout.

Prior to the Golden week holiday, iron ore and coal buyers are busily re-stocking for the upcoming Q4 as well as having sufficient inventory to last through the week-long holiday. However, the restocking spree lost steams mid-way, as the Chinese authority began their first wave of output cut, targeting the steel-making cities of Tangshan, Shijiazhuang, Anyang, and Handan.

The 50% cut in sintering fines and pelletizing was commenced on Monday, affected around 20 million tonnes of steel or 7.5% of China’s national annual output. The after-effect of cut will impact the iron ore and coking coals imports, leading to less tonnage-miles for seaborne cargoes.

“Chinese pollution regulation was one reason that circulated again on Monday with concerns how this could affect the supply chain,” said an Asia-based FIS FFA broker.

As such, the bearish market sentiments broke out among the Capesize contracts on Monday with the Q4 traded down to $17,250 at the low before finding decent buying support, also Cal 18 lost significant ground and traded down to $13,400.

By Wednesday, the Capesize 5 Time Charter Average has dropped to $21,639, down $811 day-on-day, a drop of 6.3% from Monday’s rate of $21, 639.  The sliding rates may imply the fading re-stocking optimism among the iron ore and coal importers as dates drawn nearer to the golden week.

“We all know the Capes can change quickly and on the close of play, there were rumours of better numbers paid but details are yet to surface,” opined a FIS FFA broker.

As the Capesize market lost its glitter, Panamax took a beating at the start of week with Oct trading down to $11,800 and Q4 trading down to $11,650, before finding some support mid-morning on Monday.

The situation did not change for the better on Wednesday, as both Oct and Q4 trading down to $11,200 lows with average of $300 wiped off the front of the curve despite good volume changing hands. As such, the Panamax Time Charter Average posted $11,298 on Wednesday, down 4.6% from $11,851 recorded on Monday.

“Panamax paper continued to come under pressure on Wednesday through most of the day as both basins offer up easier levels,” commented a FIS FFA broker.

However toward the market closing on Wednesday, he observed there was a change in market sentiment, as buyers came stepping back in. Most of the buyers seem to be chasing a very thin offer side which eventually resulted in Oct and Q4 trading back up to $11,500 leaving the rate relatively flat on the day by the close.

Similar softer opening was seen in the Supramax market, as the prompt months went down right at the start of the week. On Monday, Oct contract was $11,200 while Nov traded at the range of $11,000 – $11,200 with the time charter average recorded at $10,740.

By Wednesday, the Supramax had dropped to $10,580, down 1.4% since Monday’s rate and saw Oct traded at the $10,800-$10,550 range, while Q4 plunged down to $10,550. On the other hand, the Handysize time charter average traded at $9,026 on Wednesday, up slightly by 1.7% as compared to $8,873 on Monday.

With the Chinese trade participants set off for holiday next week, the freight market might have already seen the last rally of the freight rates. Market is expected to be muted with little activities as the Golden week wears on, testing the very true strength of the recent freight market revival.