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Capesize daily rates leap to almost $75,000

Market for capesizes continues its climb, driven by congestion that is tying up ships for longer at a time of rising iron ore exports from Brazil and Australia

Given the steep rise in rates in recent weeks, observers wonder if the market could run up to the $100,000 per day mark

THE capesize market continues to jump based on a severe supply shortage at a time of increasing iron ore volumes out of Brazil and Australia. 

The average weighted time-charter reached $74,786 per day at the close on the Baltic Exchange on September 29, a gain of 8.4% from the previous session. That is the highest for the 180,000 dwt assessment which launched in 2014.

The Baltic Capesize Index, which encompasses all routes, soared to 9,018 points, the most since September 2008.

“The increasing number of spot fixtures from the world’s largest iron ore exporters are clearly providing a boost to the dry bulk sector, in particular to the capesize market, as iron ore exports from Brazil and Australia represent the lion’s share of total capesize demand,” said BIMCO chief shipping analyst Peter Sand. “Furthermore, the congestion around China, and longer waiting times, mean that the average duration of the total voyage is increasing, soaking up capacity and adding further upward pressure to freight rates.

“As we approach what is seasonally the strongest time of year for dry bulk, it looks like owners and operators will continue to enjoy high spot freight rates until at least the end of the year.”

Iron ore spot freight rates from Western Australia, to Qingdao, China, have jumped 163% to $21.82 per tonne as of September 28 compared with same time last year.

It means revenue for a very large ore-carrying capesize transporting 200,000 tonnes will have risen to $4.36m from $1.66m, according to Mr Sand’s analysis.

Similarly, iron ore spot freight rates from Tubarão in Brazil to Qingdao in China are up 112% to $43.20 per tonne, the highest level since December 2009. The all-time high was $108.75 per tonne in June 2008, during the dry bulk super cycle.

“The capesize market remains tight,” said Jefferies’ senior vice-president for equity research Randy Giveans. “Despite the Evergrande headlines [about the troubled Chinese property developer] and concerns around near-term steel production, the iron ore keeps flowing. Also, coal trade continues to climb, and the grain/soybean/agriculture/minor bulk are all extremely strong, underpinning a very stable rate environment.

“I think charterers are seeing that the current strength is not going to evaporate soon, so those who were waiting on a pullback are losing patience, and opting to book cargoes now.”

Given the rapid rate rise over recent weeks, could $100,000 per day be achieved?

The answer lies in China’s iron ore purchasing strategy — will it continue to build stockpiles at a time of lower steel output — as well as the timing and degree of coal imports in the coming weeks and months. 

“I am not saying rates are definitely going higher from here, and I am not saying we will see $100,000 per day, but I am saying rates do not have to go down anytime soon. And I do believe actual capesize spot rates in the fourth quarter will outperform the current forward curve,” Mr Giveans said.

Forward rates have also been rising, especially for near-dated contracts.

Market engagement and volumes have been high for the front of the curve, according to GFI brokers.

As of the close on September 28, October was priced at $60,750, while November was at $50,750.  

While the fourth quarter of this year was at $51,000, the first quarter of next year was priced at $25,000, GFI figures showed.

According to Mr Giveans, the current steep backwardation in the forward curve was warranted given the expectation of slowing demand into the new year.

Slower activity from iron ore producers, coupled with less demand for coal inventory building, and reduced steel production during Chinese New Year and the Winter Olympics in Beijing, will be met with rising newbuilding deliveries, which typically are targeted for the start of any year.

The first quarter was thus generally the weakest.

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