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Notable Atlantic grain market activity boosts Panamax freight levels

Weekly Report 20/11/2023

Next week's Predictions:

  • Capes: The larger sizes behaved in a relatively subdued fashion compared to the Panamax sector as freight levels remained relatively stable but still showed decent support. The 5TC spot index started the week at $21,619/day and closed today at $22,913/day. Sentiment: 7

  • Panamax: The grain-related sizes were the star of the show this week as the North Atlantic took the lead and pushed freight prices much higher than anticipated. The Panamax 4 TC spot index opened on Monday at $ 12,598/day and finished the week in full flow at $15,532/day, a jump of almost $3,000/day and 23.8% higher, a move that completely overshadowed the larger sizes. Sentiment: 8

Dry Bulk:

  • On Oct 31, the twice-a-decade Central Financial Work Conference in China vowed to "meet the reasonable financing needs of developers". However the experience since the release of the "16 measures" suggests that what commercial banks could do is limited. As a result, policymakers have to take bolder steps than the "16 measures", such as setting up a lender/buyer of last resort for developers. If it happens, this will be the turning point for the Chinese property market.

  • Bloomberg reported yesterday that policymakers will provide at least RMB1tn through policy banks to support urban village renovation and affordable housing.

  • The next major macro events in China would be the Politburo meeting and the Central Economic Work Conference in early December.

  • The Baltic Dry Index (BDI) rose for the 6th consecutive trading day with all 3 major segments contributing to the positive mood, rising from 1,643 last Friday to close this week at 1,820.

  • There are now a total of 130 ships waiting to transit the Panama Canal, considerably higher than the 90-ship average of the past seven years since the waterway was expanded. The Canal authorities have already seen a massive switch for dry bulk. Analysis carried out by S&P Global shows the Suez Canal share of US Gulf to Asia shipments increased to 83% in October versus 23% a year ago.

  • Dry bulk scrap prices have eased a little in the last 2 weeks as the price basis Indian subcontinent has fallen to $540/ldt. Scrapping numbers in 2023 so far vs 2022 are as follows: Capes 9 vs 11/ Panamax 31 vs 7 / Supras 37 vs 4.

Spot Indices and weekly FFA prices:

BDI 17/11: 1,820 - 10/11: 1,643

5TC BCI 17/11: $22,913 - 10/11: $21,473

4TC BPI 17/11: $15,532 - 10/11: $12,437

  • Following our comments in previous weeks, it is now evidently clear that the 3 major dry bulk TC spot indices have now entered ‘resistance-free' areas whereby prices could be supported and reach higher levels for a bit longer than expected.

Weekly traded volumes and open interest:

Open Interest 768,169 lots - (738,149 lots)

Capes/Iron Ore/Steels:

  • Iron ore prices are still well supported and have improved again since last week. The December futures traded easily above $130/tonne this week and was the highest since early May 2022.

  • The steel-making ingredient has emerged resilient amidst the general weakness in the commodity complex, reaching an eight-month peak due to a combination of positive sentiment and supportive fundamentals in China.

  • Iron ore port stocks in China rose higher, while daily consumption in steel mills weakened due to lower hot metal output.

  • The Cape physical market can presently be described as firm with more than enough cargo demand being matched quite well in some areas with sufficient tonnage. But you only need the slightest logistical snag or a tighter lay can to increase owners' ambitions and push rates higher.

Panamax/Grains/Coal:

  • Strong rumors abound of 60 Panamax US soybean cargoes booked by Sinograin out of the US Gulf and Pacific Northwest for loading now till April next year.

  • The Panamax freight market should continue to gain momentum as congestion in Brazilian ports has reached record levels compared to a similar period two years ago.

  • According to the latest US Department of Agriculture (USDA)m grain and feed market update, Egypt is expected to import 12 million tonnes of wheat in the 2023/24 marketing year, up of 6.9% on the previous year. Egypt is the world's largest wheat importer, accounting for 16% of global purchases and relying on key wheat suppliers, including Russia, the European Union, Ukraine, and Australia, with wheat consumption estimated at 20.6 million tonnes in 2023/24.


The 13 November policy announcement from the Indian coal ministry emphasized the need for an additional coal supply of 400 million tonnes annually for the 80GW of new thermal power capacity scheduled to enter service by 2030. This would mark an increase of 40% from the 1bn tonnes expected to be produced in the 2023/24 fiscal year.

  • Coal inventories at China’s top 6 thermal power plants increased to 14.4 million tonnes as of 13th November, marginally higher w-o-w and 13% higher y-o-y. This is 530KT or 3.8% above the average stock level during this period since 2015, at 13.9 million tonnes. (Perret Associates)

  • The Panamax physical market was boosted this week in the Atlantic thanks to increased US sales of grain products to China following the meeting between Xi Ping and Joe Biden. But it was initially the North Atlantic demand for minerals that drove prices much higher than expected as more than $5,000/day was added to the Panamax route 1A/Transatlantic round voyage in 4 trading days.

Shipping and Decarbonisation:

  • Dec EUA futures attempted to rally in the early part of the week, but once prices reached close to 80 euros, the bears came back strongly and the contract closed just above 76 on Friday. Financial investors seem to dominate the short side open positions as their belief centers around the fact that the EU could enter a recession and consequently carbon emissions should be lower.

  • The world’s two biggest polluters have made a positive “gesture” to cooperate on climate change, with the US and China agreeing to accelerate the rollout of renewable energy to displace their heavy reliance on fossil fuels(FT)

 

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