Dry bulk freight markets have marked the New Year with a burst of optimism. After a muted end to a very forgettable 2020 that saw freight futures plumb to near year low forward spreads versus the spot market, January 2021 has seen a strong rebound.
The spot daily hire rate for the bellwether Panamax size dry bulk vessel has now climbed from $10,800 per day in the week before Christmas to $12,695 on last weeks close.
The real news, however, is the improvement in sentiment, as measured by the futures forward curve (FFA). In the week prior to Christmas, the forward curve for Q1’21 was trading $8,900; a fairly steep inverse, signalling the market was anticipating a greater than 20% drop in freight demand.
Last week’s close has seen Q1 values rally to $11,900 per day, bringing the expectation that we’ll see a continuation in strength with the forward market heading closer to parity, with spot values rapidly approaching $13,000 per day.
In large, part of the market is benefitting from robust demand across most of the major dry bulk commodity drivers, namely Iron Ore, Coal and Grain into China. However, of particular interest is the rising congestion being experienced globally as non-traditional suppliers of these commodities have their supply chains stretched.
For instance, as China has shifted demand for its coal away from the very efficient Australian Newcastle Terminal, greater stress is being placed on Indonesian coal terminals that favour Panamax size vessels to load coal.
As a consequence, we’re seeing more and more congestion tying up vessels in the dry bulk market effectively reducing the supply of vessels in the open market.
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