Weekly dry market overview

Monday, 09 April 2012 |
The first week of April ended with the Baltic Dry Index falling below 950 points, before Catholic Easter, and capesizes showing a modest upturn with average time charter earnings rising to more than $6,000/day, while supramax units seem to loose their strength. The dry market sentiment is still so fragile with the BDI posting a decline on a weekly basis, following consecutive weekly inclines from the first days of February.

The levels of the BDI seen last year, above 1,000 points, seem to be far from reachable although the gap from breaking the psychological barrier is near to be bridged. The capesize segment remains in unprofitable territory affecting negatively the overall performance of the index. However, capesize vessels showed this week the strongest performance with the BCI recording a 6.7% week-on-week increase in contrast with a 7.8% decline in the supramax segment. From the end of March, supramax vessels appear to loose their solid performance that posted during the month with average time charter earnings falling below $10,000/day.

The index closed on Thursday April 5th, at 928 points, down by 0.6% from last week’s closing and down by 34% from a similar week closing in 2011, when it was 1,401 points. The BCI surpassed the 1,500 points by closing at 1507 points, with vessels’ average time charter earnings floating at $6,200/day, 20% up on a weekly basis, but $2,100/day less than handysize earnings. The BCI has shown the highest weekly increase of 6.7% from the beginning of the year, and now remains to be seen if the sentiment will continue to be tough, in the upcoming weeks, with China’s position in the iron ore market playing the important role of capesizes’ performance.

The first week of April began with some positive signs for the dry market sentiment. Chinese iron ore fixtures increased by 53% w-o-w during the first days of April, according to Wells Fargo Securities, the highest level since February 2011 with an upward direction in the average time charter earnings of capesize units. Chinese iron ore inventories are falling giving signs for a stronger support in capesize earnings, while supramax average time charter earnings are still hovering more than 37% above capesizes.

A positive sentiment is being fuelled in the iron market with Australian miner Fortescue, following the strong position of its rivals, stating that despite talks of slowdown, China’s economy is expanding at a relatively healthy pace, supporting demand for raw materials such as iron ore and steel for infrastructure development and consumer products.

In the panamax market, there is still grain activity from South America moving cargoes to the Continent and Mediterranean, but rates are floating at steady levels with vessels earning $8,277/day, down by 1.3% week on week. The BPI ended at 1036 points, falling by 15 points from previous week, when at the week ending March 16th has recorded the biggest gains by moving upwards 82 points, 9.2% increase.

Even the positive prospects for smaller vessel sizes, supramax vessels have shown, during the last two weeks, a weaker performance with the BSI loosing this week 81 points, by falling to 949 points with vessels trading at $9,928/day, when last year they were floating at $15,345/day, up by 55% from the current levels and 83% higher than capesizes. However, strong signs for Chinese thermal coal activity, the large decline in Qinhuangdao coal stockpiles, the upcoming maintenance of the Daqin railway and seasonal restocking for peak summer demand will affect positively the supramax rates. One short term negative factor for the segment could be the announcement from BHP Billiton declaring that it can not meet its coal delivery obligations because of a strike by 3,000 workers at seven coal operations in Queensland and wet weather, which may cause a further downward sentiment in the supramax market.

In the handysize segment, vessels’ earnings are recording the smallest volatility by hovering at similar levels with panamaxes, $8,305/day, down by 3.1%, when last year were earning around $11,700/day. The BHSI closed at 547 points, down by 18 points (3.2%), when last week recorded the biggest value of 566 points.

The outperformance of the capesize segment among other vessel categories brings a positive feeling with no guarantees for its stability, since there is undoubted that China’s iron market sentiment for this year will pour biggest risk for capesize operators amid oversupply issues. One recent worrying sign is that Brazilian iron ore conglomerate, Vale, has decided to move in the idling of two of its very large ore carriers and delaying the delivery for two valemaxes from China Rongsheng Heavy Industries, due the slowdown of Asian demand. According to data compiled from Bloomberg, Brazil’s first quarter ore exports plunged 27% from the previous three months to the lowest level, since June 2009, as rains and flooding in January delayed production.

In February, iron ore production in Brazil dropped by 24% in February, as per the latest data released by the country's iron ore producer's association. Brazil's mining companies exported 16.61 million metric tons of iron ore and pellets in February, down by more than 24% decline from 21,89 million metric tones exported during February 2011.

Vale and MMX, two leading Brazilian iron ore miners, stated that the cause of reduced production was the heavier than usual rains in the Minas Gerais region in January, while the market is waiting strongest indications of Chinese interest. Traders are waiting to see a strong pick up in Chinese steel demand that could set an increased demand for iron ore and higher vessel shipments resulting in a solid performance of the freight markets. Market belief is that the second quarter of the year will be more encouraging than the first three months with a firmer Chinese iron ore appetite, but the uncertainty is high from capesize average time charter earnings being still depressed at levels below break even.

Source: Maria Bertzeletou, Hellenic Shipping News Worldwide