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Capesizes have caught up with smaller bulkers and could regain their hold in spot market

Home | Press | Tradewinds | Capesizes have caught up with smaller bulkers and could regain their hold in spot market
The dry bulk market has been moving from strength to strength in 2021, after prolonged period of stagnation. Earlier this year, I questioned if this was going to be the year of the smaller sizes as this sector has experienced the most impressive gains with timecharter rates more than doubling since the start of the year. However in early May, capesize one-year time charter rates were at the highest levels in seven years and the Baltic Capesize Index (BCI) hit levels not seen since 2010, does this imply that the capes resumed their position as the star player or was this a short-term spike?
Trade Winds Mast Head

Booming rates

Ultramax rates for one-year have seen a year-to -date increase of 61% with the April average for one-year at $18,500/pdpr* according to Alibra’s timecharter estimates. Meanwhile cape rates continued to rise at a slower rate of 42% but then earlier this month the BCI soared thanks to strong demand on the Brazil to China and West Australia to China routes, coupled with growing support that the rally in dry bulk rates will continue, at least until the end of Q2, the timecharter market followed suit and rates peaked at $28,000/pdpr, up 100 % from the start of the year. At the time of writing the article, dry bulk rates have dipped slightly, but with iron ore prices at an all-time high, there is growing optimism that demand will remain strong and rates will pick up once again with the end of the Australian financial year approaching. Iron ore exports traditionally peak at this time as the industry pushes out as many shipments of iron ore as possible before the end of the financial calendar.




Looking at the market fundamentals behind this meteoric rise in the dry bulk market; Iron ore demand has been strong this year due to restocking following the pandemic. Strong economic activity from China and the US announcing a huge stimulus package with a firmer iron ore consumption outlook than originally projected has fuelled sentiment, combined with economic recovery elsewhere as various countries begin to emerge from the pandemic.

Supply chain concerns

Q1 iron ore production from Brazilian miner Vale was 14.2% higher year-on-year and production guidance for 2021 remains at 315 to 335 Mt which is good news for the cape sector. However, Vale have a history of missing the guidance levels and with Covid cases soaring in Brazil, it remains to be seen if the miner will be able to achieve production targets. With iron ore prices sky high, there is plenty of motivation to move as much of the commodity as possible.  In their latest quarterly report, Vale predict that the iron ore rally will continue in to Q2 of this this year but then suggests that demand from China might be impacted by production cuts due to environmental restrictions.

Green Goals

China’s hunger for iron ore has been the main driver in the current market rally but environmental pressures could put pressure on iron ore consumption. Beijing had planned to reduce crude steel output in 2021 in an effort to meet green goals going forward but at the moment the target seems unrealistic as steel production rose 15% year-on-year in Q1. Improved profit margins from steel mills, rocketing iron ore prices and an optimistic outlook for steel demand has sent China’s crude steel output to record levels in April of 97.85 million tonnes according to the National Bureau of Statistics of China.

Opinion is divided over whether we are indeed entering a commodity ‘super cycle’ or are we experiencing restocking of resources following the plunge in demand caused by pandemic related lockdowns or are inflationary concerns motivating investment in commodities as a means to hedge risk. Despite the dip in rates over the last few days it’s hard not to get excited about the prospects for dry bulk going forward, following a strong Q1. If the rates from April and early May dry are anything to go by, we are undoubtedly in for an exciting, if volatile end to Q2 for capes. For now at least, capes are back in the driving seat thanks to demand for iron ore going through the roof. Going forward to the rest of 2021 to 2022, booming commodity demand should ensure a firm market for dry bulk across all sectors.

By Rebecca Galanopoulos Jones, published in Tradewinds May 2021.


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