Home / Shipping News / Dry Bulk Market / DRY BULK: Capesize rates at 18-month high on strong China demand

DRY BULK: Capesize rates at 18-month high on strong China demand

China’s insatiable demand for iron ore and a bullish Freight Forward Agreement, or FFA, market along with a displaced tonnage supply situation have driven up Capesize dollar per ton freight rates to an 18-month high.

Freight levels on key iron ore shipping routes — Western Australia to China and Brazil to China — have spiked noticeably from early April, after witnessing a surprisingly strong Q1, by over 25% to $11.60/wmt and $27.20/wmt, respectively, on April 23.

The S&P Global Cape T4 index, basis 0.5%S marine fuel, touched $31,823/day on April 22, a six-month high.

“The FFA market is supporting the physical market extremely well not only for May and June, but also for Q3. We believe this Capesize rally has more upside,” a ship-owning source said.

The current freight rally in the Capesize market is being led by the demand for ships in the Pacific basin, especially from Western Australia, a Japanese ship-operating source said.

Since March, Platts Time Charter Equivalent, or TCE, assessments on the Western Australia to Qingdao route was at an average premium of above $4,000/day over the Brazil to Qingdao route. With the Pacific region paying more to owners, ships stayed within this area instead of heading to the Atlantic market, which saw tonnage supply eventually tightening in that region.

Strong steel prices as well as the environmental regulations in China are seeing steel mills preferring higher-quality Brazilian iron ore fines.

Meanwhile, the share of the Brazil to China Capesize freight rate in the benchmark S&P Global Platts IODEX 62% Fe CFR China index has stayed in the 8%-14% range since the beginning of 2021, compared with the five-year average of about 20%.

“The Capesize freight rate as a percentage of the seaborne iron ore price has been low for a long time… the freight cost is just [a small fraction of it], so I expect the freight rates to move up further,” a ship-operating source said, adding that mining majors are benefiting more from the high commodity price.

“I see a massive cargo volume because [iron ore] price is too high now,” a South Korean ship-operating source said.

The demand for Capesize ships is coming in for voyages from east and west coast India to China as well as Black Sea to the Far East, which are sizable ton-mile generating trips, the source added.

Also, the transfer of cargoes intended for smaller ships such as Panamaxes and Supramaxes to the Capesize segment has helped in keeping the tonnage tied and freight rates well supported.

The Chinese ban of Australian coal has created alternative shipping routes for the Capesize ships out of Russia, Indonesia, US, and South Africa, market players advised.

With the firm FFA segment alluding to a promising outlook for the Capesize market, mining companies and ship-operators are rushing to lock in tonnage for longer durations, according to sources.

“The period market is getting strong. For scrubber-less Capesize ships, we are seeing fixing levels in the $23,000-24,000/day to $27,000-$28,000/day for a one-year period,” a Capesize ship-owning source said.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping