FFAs Rise Amid Escalating US-China Trade

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With a single Tweet from President Trump, the flames of the US and China trade war have rekindled and rattled the global markets, based on an article by Freight Investor Services.

Political instability

Political instability between the US and China shook market confidence and prompted falling freight rates. However, the falls were also accelerated by lack of cargoes from Brazil after a court ruling reversed the restart of Vale’s Brucutu mine.

Limited Seaborne iron ore cargoes from Brazil

  • Iron ore fines shipment from Vale had recorded at 55.41 million mt in Q1, down 22.2% on the year, due to lower production level which fell by 11.1% to 72.87 million mt.
  • Rainy weather in Brazil’s Para state and dam rupture in Minas Gerais state contributed to the falling iron ore productions and caused Vale to declare force majeure on some sales contracts.
  • Furthermore, the market participants were concerned about supply tightness in Brazilian fines after a court decision to close the 30 million mt per year, Brucutu mine owned by Vale.

Rising rates boost Cape futures

  • Despite the gloomy market outlook, there are some fresh cargoes from West Coast Australia that lifted freight rates.
  • According to trade sources, freight rates were mainly driven by the Capesize Forward Freight Agreement (FFA) market on Wednesday along with resistance from some shipowners.
  • The rise baffled some market participants as the month of May is usually not a good month for Capesize market, but rates are higher this week.
  • As such, a strong finish was recorded on Thursday, 9 May 2019 for Capesize FFAs where the time charter average rose $764 on-day to $10,708.

Uncertainty clouds Panamax market

  • The Panamax market seemed more vulnerable in the escalating trade war between the US and China.
  • Since Monday, Panamax paper contracts were slipping into negative territory with increasing volatility.
  • By Thursday, more anxiety appeared in the Panamax market over the failing trade concession between the US and China.
  • A selloff occurred in May and June contracts to $9,500-$9,550 support, while the Q3 contract looked to test the $10,000 level.
  • Despite the selloff, the Panamax time charter average managed to hold out to a gain of $39 on-day to $9,548 on Thursday.

Smaller vessels come under pressure

  • Throughout the week, Supramax and Handysize paper market was much quieter in comparison to the larger vessels as trade participants come back from a long holiday.
  • Supramax paper market struggled to find any momentum until late in the week where firmer supports were found.
  • By Thursday, the Supramax time charter average reached $8,630, up to $61 on-day, while handysize time charter average recorded at $5,716, up to $4 day-on-day.

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Source: FIS

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