Capesize Rates Retreat on Weak Fundamentals

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  • China’s economic slowdown and the softening Panamax market weakened freight rates this week.
  • Capesize 5 time charter average recorded at $14,608, down $998 day-on-day, but  failed to recover and dropped further to $13,823, down $785 day-on-day.
  • China’s culling of pigs has a domino effect in the reduction of soybean shipments to China and hit Panamax market.
  • Panamax freight rates faced sharp decline during the week with Panamax time charter average slipping by $457 day-on-day to $7,187 on Wednesday.
  • Supramax time charter average traded at a spot price of $6,829, down $274 day-on-day at Wednesday.
  • Handysize traded at $6,137, down $130 day-on-day basis.

Freight rate opened the week on weaker market fundamentals with concern over the China’s economic slowdown and the softening Panamax market. These left the Capesize market with little trading activities and saw a standoff as ship owners offering high, while the charterers bidding low, reports FIS.

China’s GDP at 28 year low

Besides, the market sentiment has not been on its best with trade concerns over poor economic data from China, as the country’s GDP registered a low 6.6% growth for 2018, its lowest since 1990.

The Chinese government has since reacted to the lacklustre trade indicator with easing of loans as the People Bank of China (PBOC) slashed its cash reserves holdings or reserve requirement ratios (RRR), freeing up to $116bn for new lending.

Infrastructure wise, the Chinese government has provided a stimulus package of urban rail project worth RMB 860 billion since December 2018 in a bid to reverse the country’s failing economy.

Paper market selloff

Despite the best effort from China’s policymakers, the market participants were less confident over the macro-economic outlook which lead to a Capesize paper selloff early this week.

Thus, this prompted the C5 fixtures of 6.10 to circulate on Tuesday afternoon session with little signs of an immediate recovery in physical market. Later, the market did find some support as the Capesize 5 time charter average recorded at $14,608, down $998 day-on-day.

By Wednesday, the Capesize 5 time charter average failed to recover and dropped further to $13,823, down $785 day-on-day, following the slide of Panamax rates.

African swine fever slides Panamax rate

The Panamax rates came under pressure this week from the spreading of African swine fever. By mid-January, China was reportedly to cull more than 900,000 pigs due to the deadly virus from the 100 outbreak areas dotted across the country.

Apparently, the culling has a domino effect in the reduction of soybean shipments to China as animal feeds for poultry market. This bearish undertone clouded the Panamax market and resulted sharp decline of Panamax freight rates during the week. Thus, the Panamax time charter average slipped by $457 day-on-day to $7,187 on Wednesday.

Supramax and Handysize under pressure

Following the bigger ships’ falling rates, the freight rate of Supramax came under pressures on its prompt months.

On Wednesday, the Feb 10 TC was trading $7,500-$7,800 range and March at $8,650-9,000, while Q2 10TC continued to trade throughout the day $10,250, as further out the Q3 10TC and Q4 10TC continued to see some bid support with limited activity.

Thus, the Supramax time charter average traded at a spot price of $6,829, down $274 day-on-day at Wednesday, while Handysize traded at $6,137, down $130 day-on-day basis.

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Source: FIS

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