April 19, 2016. The latest Dry Bulk Freight Forecaster from Maritime Strategies International* analyses the recent uptick in the Capesize market and considers the positive trends and mitigating factors.
MSI finds the indicators are relatively positive in the short-term for iron ore trade. On the supply-side, iron ore prices of $50-60/tonne are in profitable territory for the big iron ore miners and will no doubt support the ramp up of new export capacity in Australia and Brazil.
On the demand side, an uptick in steel prices and steel production in China in March underpins more positive sentiment. In addition, concerns of high iron ore stockpiles in China are overplayed; at 97mt stocks are the highest since May last year but not far from the historical average and below a peak of 114mt in Q2 2014.
MSI is relatively optimistic for Capesize market over the next six months when compared with today’s levels, forecasting spot rates of $8,000/day in June and almost $10,000/day in September.
Will Fray, Senior Analyst at MSI said:
“There is no doubt that better iron ore trade has been behind the uptick in Capesize freight rates. March exports from Brazil were up 22% yoy to 35mt and Australia’s exports have gained ground year on year by a smaller margin. The cumulative impact of these gains, coupled with very strong Capesize scrapping in Q1 more than offsetting deliveries, has been enough to spark a limited positive freight response early in Q2.”
March saw a further contraction in the Capesize fleet, the second largest monthly reduction since 2000, with the fleet shrinking by 1.3m dwt. Deliveries of a meagre 1.1m dwt were outstripped by 2.4m dwt of scrapping.
MSI’s latest forecast for deliveries totals 6.4 dwt and 4.6m dwt in Q2 and Q3 respectively. Although bullish, those forecasts have already accounted for significant cancellation and slippage, both of which play a role in altering the near-term delivery schedule.
For the uptick to be sustained, Fray says the Capesize market will need to see a continuation of the nascent recovery in Chinese steel output and also coal imports.
“With iron ore imports now contributing a dominant proportion of consumption in China of around 80-90% by month, if steel output there falters then global ore trade will suffer. In addition, the stabilisation in hitherto declining Chinese coal imports will need to be sustained; March’s imports actually increased by over 15% yoy, the first yoy increase since June 2014.”
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