Intermodal Weekly Market Report, Tuesday 14th March 2017, Week 10

Market insight By George Panagopoulos

Research Analyst

Over the past two weeks, the Dry Baltic Index has been on an upward trend, breaking the 1000 point mark and creating a positive sentiment for the upcoming weeks. Generally, healthier freight rates have given a boost in sales, and from the beginning of the year 36 SnP deals are being fixed on average per week, with the majority of those being Bulk Carriers. In relation to the Capesize segment, the chart below compares the same dry indices of the last 8 years versus the underlying asset prices (please find attached):

It has become apparent that potential buyers can purchase a cape at fairly good levels compared to previous years when the BCI was in the same levels, hence so far so good! However, as iron ore is the main cargo for Capesize vessels, it is interesting to examine how the commodity has performed from the beginning of the year and what are the forecasts for 2017. Almost all commodities from the beginning of the year are on the high side with Iron Ore and other industrial metals being the prime gainers. The trade surplus is increasing and is on a positive trend, after the previous bad year. To put things into perspective, from December 2016 iron ore has made a full U-turn from the previous year’s devastating losses and has hit $US90/t, with Iron Ore prices doubling from the December 2014 prices, driven by the strong Chinese iron ore demand, which in turn has driven Cape rates above $12,000 per day. However, after a long rally in Iron Ore prices, there are signs of a reversal of the recent trend.  Since Tuesday (7/03/2017), Iron Ore prices have continuously declined, raising concerns from many market analysts about the sustainability of a long-term upward trend. The main reason behind this decline is the flagging strength of demand in China at a time when iron ore stocks are continually rising. As a result, some analysts predict that the Iron Ore price will again fall to $US50/t by the end of the year. But can a ship-owner hedge against this risk?

To conclude, the Dry market is witnessing a positive market trend, yet analysts are prepared for the worst. In the wet market, it will be interesting to see the market reaction after the recent drop of crude oil prices below $50/bl. This is on the back of record U.S. inventories that have now completely wiped off the boost on prices that the OPEC production cut had caused.

Whole weekly report you can download here