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BDI continues upward momentum

Dry bulk owners' earnings have been rising, supported by strong capesize and panamax markets, which have reached the highest level in six years. However, the segment is expected to show signs of slowdown due to the escalating tensions between China and the US

The increase in rates could spur interest among owners to lock in gains by chartering their capes and panamaxes for longer periods of time, said one broker

THE Baltic Dry Index is continuing its upward momentum, buoyed by higher freight rates for capesize and panamax bulk carriers.

The index rose to 2,267 points on Wednesday, climbing to its highest levels in the past six years and was up by 25.1% compared with the beginning of the month.

The strengthening of capesize shipments was not surprising due to increased iron ore cargoes to China from Brazil and Australia, but the boom was also propelled by coal shipments from Indonesia and Australia to China.

“Especially on the Brazil to China route we have seen a big improvement with $4 per tonne added to the freight,” Norwegian brokerage Fearnleys noted.

“For this route we see significant activity with less and less early tonnage available. This tightness indicates that we are looking at further improvement in the week to come, however it mostly depends on the schedule and activity of one major freight consumer.”

The average capesize weighted time charter on the Baltic Exchange was at $32,182 per day at the close on Wednesday, up from $28,431 last week.

The increase in rates could spur interest among owners to lock in gains by chartering their capes and panamaxes for longer periods of time, said one broker.

Looking forward, the Singapore-based broker added: “I think the general upward trend will carry on until the next few weeks. Tonnage tightness remains a big issue and this will put pressure on rates.”

“However, I am cautiously optimistic in the short term as the macro environment looks bleak and is sure to have an impact on spot rates.”

Trade tensions between the world’s two largest economies has already started to take a toll on the dry bulk market.

Chinese steel futures have slumped more than 3% — the steepest drop in nine months — on the back of heightened worries about a prolonged weakness in demand, according to Arctic Securities.

Steel mills in China are also grappling with a plunge in the currency after China weakened its yuan which has eroded the purchasing power of steel makers, underscoring jitters over seaborne demand for raw materials.

Although, China's energy demand could be partly cushioned by policy support for domestic consumption, Bank of America Merrill Lynch warned that industrial metals like copper or nickel are also set to suffer from a slowdown in Chinese investment and exports. This might further hurt dry bulk shipping demand.

Moreover, Chinese coal imports are already up 7% year on year as at end-July while the Asian giant plans not to exceed 2018 totals. Evercore ISI analyst Jonathan Chappell said that there is a risk that a large pullback from this trade could result in end-of-year weakness in spot rates, just like the large decline in late 2018.

Still, it is not all gloom and doom. Another broker pointed out that panamaxes would benefit from the increased grain flows from the east coast of Ssouth America in the coming months which would hugely support spot rates.

 

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