Capesize owners opt for shorter Pacific over longer Brazil trips despite contango
The Capesize dry bulk segment is seeing shorter trips within the Pacific region offering higher returns than the longer voyages out of Brazil in March — a reversal of the usual state of affairs when the freight market is in contango.
The time charter rate for a Capesize ship opening in the Far East to move iron ore from Western Australia to China was assessed at $23,743/d March 17 — $5,600/d higher than the return trip via Brazil, which was assessed at $18,143/d.
A typical round trip for moving iron ore from Western Australia to China takes less than 40 days, while a round voyage via Brazil takes about 90 days.
“The Atlantic is having more open tonnage and so is India. [Thus] there is downward pressure on South Africa and Brazil rates,” a shipowner said.
Typically when the market is in contango — or future demand is greater than prompt demand — shipowners tend to discount freight rates on shorter trips so they can be available again to fix at the higher rate later.
Capesize freight derivative rates for April and the second quarter stood at $28,829/d and $31,952/d, respectively, March 17, according to Singapore Exchange data.
Shipping market sources noted that forward prices remained higher than spot for most of 2021.
“The contango is quite stark still and will continue stay that way as there is still optimism on forward demand,” a ship chartering source with a commodity trader said.
A Singapore-based shipbroker said there was still demand from ship-operators to fix ships on period business in order to lock in tonnage for durations of up to one year.
“A weak spot [market] doesn’t mean forward is weak,” a ship-operator said, noting that spot and forward rates were trading independently.
The shipowner source said that in the current conditions: “It is clear that if you have the choice on vessels in the Pacific, stay there.”