03-08-2018

Capesize routes surged to multi-year highs due to Atlantic push

The current upturn in the Capesize market has surpassed expectations as key Brazil and South Africa to China iron ore routes posted multi-year highs Tuesday mainly on the back of strong demand from the Atlantic market.

“Brazil and [South Africa] are obviously supporting, which is what is needed [for this market]. The fundamentals, especially from Brazil, were that they wanted to produce record shipments to make up for the rainy first quarter,” a Capesize shipowner source said.

The Brazil push for these vessels saw the Capesize Tubarao to Qingdao 170,000 mt (plus/minus 10%) route being assessed at $24.15/wmt Tuesday, which is the highest since November 10, 2014, when it was at $24.25/wmt.

While it’s debatable whether the supply tightness was the sole reason for the market seeing a big uptick in the rate levels, the leftover cargoes with prompt dates was certainly of no harm to the shipowners’ cause.

“There isn’t particularly too much tonnage tightness towards the Atlantic, but some cargoes with earlier loading dates have to be cleared out, and the vessels that are able to make those dates are all offering high numbers,” a Singapore-based source with a ship broking company said.

For the Atlantic market, the tonnage demand emanating from South Africa also, to an extent, added to the market’s momentum. The Saldanha Bay to Qingdao 170,000 mt (plus/minus 10%) route assessed at $18.10/wmt Tuesday, which is just 40 cents/wmt below the four-year high of $18.50/wmt registered on November 7, 2014.

In the Pacific region, the freight rate for a Capesize vessel to move iron ore from Port Hedland to Qingdao was assessed at a year-to-date high of $10.10/wmt Tuesday.

The earnings on the Capesize vessels have spiked substantially with the pickings on the key routes above the $25,000/day levels.

The Time Charter Equivalent or TCE on the Port Hedland-Qingdao route was assessed at $26,458/day Tuesday, up approximately six-fold from a year-to-date low of $4,712/day on April 4, 2018.

The TCE for the Tubarao-Qingdao route was assessed at $26,768/day, and for the Saldanha-Qingdao at $25,821/day. Both being the highest since S&P Global Platts began publishing TCE assessments from January 3, 2017.

“There is good demand, while the supply build-up is slow. Also, small-size players have quit the Capesize market, making it more consolidated and the owners [with larger fleet] getting more bargaining power,” a ship-operating source said, adding that the strong steel margins were supporting the seaborne iron ore shipping volumes for the past few years.

Sentiment in the Capesize segment was also buoyed by the recent rally in the freight derivatives market, as well as an increasing tightness in supply of vessels given the delays caused by a series of typhoons that buffeted the North Asia region.

“There are more spot cargo requirements popping up, so the market is bound to push higher,” a source with a ship-operating firm said.

The gains made in the recent days are expected to persist in the third and fourth quarters of the year, market sources said.

Source: Platts

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