Will the Panamax Trend Continue?

Unpredictable and volatile is the life of a shipowner.  Five weeks ago the Panamax index was at USD 4,054, the US and China were trading insults over the origin of the COVID-19 pandemic leaving the phase 1 trade deal to exist on paper only.

 

The index is now 138% higher at USD 9,661, China and America are still trading insults but the rhetoric has toned down. The Phase 1 deal – all but dead a month ago – has seen renewed commitment from the Chinese which intends to honour the deal and purchase USD 40 billion dollars of agricultural goods.

 

For the U.S. farmer this is great news, China only purchased USD 4.5 billion worth of agricultural goods in the first 5 months of 2020, the pandemic will have been partly to blame but the politics were certainly a factor.

 

For the Panamax owner the timing is perfect, Vale has committed to meeting its iron ore commitments for the year, just in time for the Chinese restock. This has cleared out the ballast list for the big sister and resulted in a stratospheric rise in the Capesize index to above USD 28,000. Meanwhile, state-owned Chinese food companies are in the market purchasing grains, creating a healthy market for the Panamax owner.

 

The big question is will the Trend continue?

 

The futures curve is often a good place to gauge market sentiment and it would indicate that expectations are positive, with the 4TC index lagging the July futures by 1,700 and the Q4 futures by 1,400, suggesting that owners still feel the index is undervalued.

 

The real question the owner wants to know is then, are the futures undervalued?

 

The fundamentals are positive and as highlighted, Looking at the FIS Live App (https://freightinvestorservices.com/fislive/), the seasonality chart and the technical chart are also bullish Panamax Q4 futures, suggesting that downside moves in the technical should be considered as corrective (ie: countertrend) and should potentially find buying support at lower levels based on Elliott wave analysis.

 

So will the Panamax trend continue? For now, it looks like it is in a corrective phase, but if it holds above the USD 10,150 area then it is likely to go up and test the highs again in the very near-term. The Chinese seem committed, so as long as there are no more inadvertently misplaced comments from the US administration, the futures do look like they could be in for a healthy summer. (FIS)