Chinese Iron Ore Imports Help Strengthen FFAs

Drewry Maritime Research’s latest Dry Bulk Insight saw the Drewry Hire Index improve to 229 points in June,  a 6% increase from May.

 

The largest improvement was seen in the Capesize vessel segment, resulting in the Drewry Capesize Demand Index increasing by over 80% during the month. This provides a more positive outlook for the dry bulk market thanks to increased chartering activity, low ordering, restricted deliveries and steady demolitions.

A burst of Chinese ore importing was the catalyst for a big spike in the dry market in June. Period activity, an important indicator of sentiment, picked up in terms of activity and duration. Turnover soared in the dry ‘swaps’ market (FFAs): at the end of June, estimated weekly volume reached nearly 28,000 lots; the most so far in 2013, rivalling levels at the end of summer last year. Not surprisingly, much of the activity was in the Capesize sector, which benefits from movement of big ore cargoes. Put in perspective, June’s movement upward (which continued into early July before sharply reversing), brought hires up to levels that only slightly exceed daily breakevens (operating cost plus capital component) for modern Capesize vessels.

With much of the trading in nearby positions, the slope and magnitude of the forward line-up did not change much throughout the month. By the end of June, when the Capesize composite had reached nearly tripled to $15,000pd from $5,000 a month earlier, the more distant Calendar positions, which are divined by estimates more often than actual trades, remained steadfast in their slope from up $1,000 during the month.

As is typical, the nearby positions responded positively to the forward spike, with the Q3 Cape instrument moving up from $7,400 to around $11,400pd (still below spot), and the Q4 position rising in June to $14,200 from $11,900 in the space of a month. Volatility is a two-edged sword, however.

By early July, as the spot composite reversed course and shifted downward, the wind was taken out of the sails of these 2013 quarterly positions. The 2Q14 position, reflecting seasonal optimism, had risen during June to $11,400pd from its start at $10,200.