Panamaxes Hold up as Rest of the Market Retreats During January

By
Mfame Team
-
2455

Panamaxes Hold up as Rest of the Market Retreats During January, Chinese Coal Trade the Major Uknown for the Market Moving Forward

dry

SGX freight derivative volumes totaled 30,591 contracts in January (-5% m/m; -34% y/y), while open interest averaged 88,539 contracts during the month (-3% m/m; +3% y/y).

The Baltic Dry Index declined 17% during January, its second consecutive month of declines, though Panamax rates notably bucked the trend rising on stronger grains trade.  Despite the seasonal declines across other vessel classes, rates largely exceeded the more bearish expectations for the month.

As the dry freight market looks to beyond Lunar New Year for direction, seaborne coal trade remains a key area of uncertainty for 2017.  Our latest industry survey indicated expectations that Chinese coal output restrictions will likely be enforced again from the spring, casting a cloud of uncertainty over seaborne demand in the months ahead.

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2BDI sees seasonal pull-back in January; grains boost Panamax rates

The Baltic Dry Index (BDI) ended the month down 17% in January, though remained more than double that of Jan 2016.  Panamax rates bucked the trend of dry freight winter blues, increasing 12% during January on stronger grains trade.  Capesize rates declined 16% during the month, while among smaller vessel classes Supramax and Handysize rates declined 25% and 33%, respectively.

In spite of the general decline in most spot rates during January, rates largely exceeded more bearish expectations for the month, most notably in the Capesize and Panamax market.  The spot Cape/Panamax ratio closed January at 1.23x, versus 1.63x a month ago (LTM avg.: 1.44x).
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Coal to remain key uncertainty for dry freight in 2017

Stronger-than-expected seaborne coal trade, following implementation of domestic output restrictions in China, was one of the main surprises in the dry freight commodity suite last year.  Looking forward, that same dark cloud of uncertainty is likely to linger over 2017.  Our latest industry survey revealed widespread expectations that China’s 276-day production restrictions will likely be resumed from the spring, with uncertainty over the impact on import demand as central policymakers adjust production and prices to their desired levels. Meanwhile, Indian import demand is also likely to hinge on domestic production.

Across key dry bulk commodities, iron ore stockpiles at Chinese ports continued to trend higher to a record high of around 120Mt, while iron ore prices defied bearish expectations and remained around the $80 per tonne range for second consecutive month.  Thermal coal inventory at Chinese ports on the other hand declined through the course of January. Seaborne thermal coal prices pulled back moderately, though NEWC prices remained comfortably above $80 per tonne.

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Source: SGX