Dry bulk: Capesize rates spike defying weak seasonality trends
Capesize freight rates hit a three-month high in January defying historical weak seasonality trends as supply bottlenecks caused by adverse weather at the Chinese coast and high commodity prices continued to drive demand for tonnage.
S&P Global Cape T4 index for non-scrubber ships touched a 90-day high at $23,908/day on Jan. 12, in contrast to the past, where Q1 mostly remained a seasonally low period for the Capesize market.
Also, Cape T4 index year-to-date this year has seen a multi-year high for January despite poor weather affecting iron ore shipments out of Brazil and Australia.
On the key west Australia to Qingdao route, Platts TCE rate for January has so far averaged at $22,237/day, almost double of what was registered in the same period from 2017 to 2019. In 2020, the average TCE fell on the back of high low sulfur fuel oil price amid IMO 2020 regulation at low-$3,000/day level.
“The weather will be the key for the tonnage supply, which would determine the trajectory of freight rates,” a ship-owner source said.
The inclement weather caused by icy conditions are affecting cargo operations, especially around north China which in turn tightened tonnage supply over the past two weeks.
This situation, to an extent, has created a sizable price imbalance in trade out of the Pacific versus the Atlantic market.
Capesize ships opening in the Pacific for new employment was fetching TCE returns over $6,000/d for the first trading week in 2021, which forced owners to embrace shorter trips within the Pacific region compared with a longer trip via Brazil. This resulted in fewer ships ballasting to the Atlantic, coercing charterers with cargoes in that region to bid up to secure tonnage.
Hot iron ore price boosts shipping demand
Capesize freight rate as a percentage of the delivered seaborne iron ore price in China, continued to be low – between 6% and 12%.
“Miners have been benefitting from the high iron ore prices and shouldn’t really be deterred if the freight cost increases. Any necessary cost involved in ensuring the cargoes get transported in time should be well handled by the majors,” a Singapore-based shipbroker said.
The burgeoning Chinese appetite for iron ore amid supply concerns persisting in Brazil, the high seaborne iron ore price has incentivized Australian miners to sustain high output levels, according to market participants.
According to Platts trade-flow software cFlow, volume of iron ore shipped by three Western Australian mining majors totaled 34.72 million mt over the past two weeks ended Jan. 9, a 22.3% increase compared to the same period in 2020.
With market conditions looking favorable, the period business for the Capesizes, where ships are locked in by a charterer for durations from three months to a year or more, is getting busier.
“The hot Period activity in Q1 is a fantastic sign,” a second shipbroker said, who is predicting a positive outlook for 2021.
Among period fixtures heard, Greek ship owner Diana Shipping has reportedly fixed its 2015-built MV. Santa Barbara to Cargill for a duration of 13 to 15 months, commencing Jan. 9 at around $17,300/day.
The positive sentiment in the freight forward agreement (FFA) market has roused owners’ willingness to secure ship income at a decent level, a ship-owning source said.
So far, for charterers the returns from the first leg of period fixtures were in the positive territory, which has reduced the ship-operating risks and boosted their interest, according to market participants.