17-11-2018

Dry bulk FFA market: Capesize goes south on bleak winter demand

The Baltic Dry Index (BDI) appeared to be a tight rope walker this week on the verge of falling off from the 1,000 mark.

As of Wednesday, 14 November 2018, the BDI clung to the lifeline at 1,009 points, raising market concerns on whether it will go under the 1,000 points as it did previously on 6 April 2018 posting at a year-low rating of just 948 points then.

“If extreme volatility is the theme for this week on Capesize paper then the market on Wednesday took it to a new level.” said a FIS FFA broker.

To him, the market volatility proved too much for the traders to stomach as trading went into numerous directions with the December contract rangebound at $10,500 – $13,500, while Cal 19 traded along the range of $15,000 – $15,750.

Thankfully, the BDI index eventually rebounded to 1,020 points on Thursday but not without a sharp sell-off in the paper market through the week.

Sell-off in Capesize market

Despite the slight recovery, the week was generally a sell-off for both physical and paper market with Capesize 5 Time Charter average recorded at $8,458 on Wednesday, up $471 day-on-day but down $812 as compared to Monday’s rate of $9,270.

The almost one-year low BDI and market selloff was attributed to the slowing economy growth of China which demand less commodities over this winter period.

Bleak winter for commodity

In term of business cycle, the Chinese steel industry usually imports less iron ore during winter period due to the slowdown of the construction activities and steel mills’ output cut on environmental grounds. During the same time, the Chinese authorities also limited the coal imports in Chinese ports which were used for power plants in a bid to reduce air pollution.

With less commodity movement, the shipping rates are bound to suffer, while some market participants suggested that the ongoing trade war between the US and China had finally caught on the shipping market.

However, the trade tension may ease as the two countries’ leaders pledged to meet later in the month for the G20 summit in Argentina.

A Resilient Panamax market

With Capesize taking the brunt of the falling rates, Panamaxes paper market prove resilient on the market selloff and even posted a day gain of $16 to end $11,988 on Monday for its time charter average.

However, the trading tone remained cautious for rest of the week, as market selling pressures brought a correction on the Panamax paper market eventually.

As such, the Panamax time charter average closed at $11,731 on Thursday, down $147 day-on-day, and down $257 as compared to Monday rate of $11,988.

Smaller vessels struggle to find support

Meanwhile, smaller vessels like Supramax and handysize continued to find support in the oversold paper market this week.

On Thursday, the Supramax time charter average posted $10,704, down $97 day-on-day, while the handysize time charter average went down by $43 day-on-day to $9,376.

Source: SMN

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