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Are the darkest days over – for Panamax freight at least?

If ever there was a leading indicator to the commodity index this year, it is the Panamax freight market.

Already coming under heavy pressure in the last quarter of 2019 these mid-sized workhorses of the dry bulk market started 2020 on the same bearish footing; this before COVID-19 had reared its unwelcome head.

Nothing really equals freight volatility when it gets going, so to freight traders a 28% drop in the Bloomberg Commodity Index is akin to an afternoon’s work for a busy FFA trader.

As bleak as the world might seem right now, with 3.4 billion people under lockdown, this is possibly the most positive analysis for the current commodity bear market over the last three months.

The lockdown means fewer cases of the virus; fewer cases means we leave ‘heart attack’ mode and enter recovery mode. This means in a month or so we should see the Bloomberg Commodity Index staggering to its feet, raising its fists in front of its face and letting the world know it is ready to fight on.

This paints a potentially good picture. Unfortunately for the Bloomberg Commodity Index the champion – known as ‘Dry Bulk’ – has already left the building.

The dry freight market started this downturn early, meaning the cycle completion looks to have happened in the Panamax market a couple of months back, at the end of January. These ships carry grains, fertilizers and coal: some of the key ingredients we need to nurse the global economy back into life.

Since then we have seen a build of Panamax FFA Open Interest (the contracts agreed but which have not yet come to settlement) that did not slow down with the March sell-off, bringing OI to its highest level in four years. This is significant, because Panamax front month futures dropped 47% and the ‘market longs’ did not exit.

They held their positions, the leaders of the leading indicator. They know what’s coming, and now perhaps you do too.
Source: Freight Investor Services

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