10-05-2021 High iron ore price halts capesize retreat, By Nidaa Bakhsh and Inderpreet Walia, Lloyd’s List
Capesize rates have reversed their recent declines as iron ore prices set fresh highs, seen as supportive for freight. Iron ore futures on the Dalian Commodity Exchange surged 10% to $226 per tonne on the back of formidable demand from China and a recovery in the rest of the world, with forecast global economic growth seen at the highest level in 30 years, according to reports.
The capesize average weighted time charter responded, gaining 2% to $42,370 per day at the May 10 on the Baltic Exchange compared with May 7, halting a two-day decline that had been spurred by fears of souring relations between China and its main iron ore supplier, Australia. A Hong Kong-based ship broker said the “astounding” iron ore prices and the rebound in Chinese steel production were supporting capesize spot rates. Chinese demand for iron ore has soared as strong steel prices see mills ramp up export production, the broker said, adding that while the dry bulk action has centred on the largest bulk carriers, the fever was slowly trickling down to panamax and kamsarmax segments too.
Panamax earnings rose to $27,126 per day on the Baltic Exchange, while the Baltic Dry Index moved up to 3,240 points.
According to the broker, the demand for capesize fixtures was being driven by China, which was “back in action and readily paying” on the front haul from Brazil. China was largely absent from the market due to May Day holidays in the past week. That means that shipowners can basically “name their price,” he said.
A capesize broker in Singapore told Lloyd’s List that many traders and brokers believed that a suspension might be put in place on iron ore cargoes from Australia given the intensifying trade spat. But the strong iron ore demand reflects China’s continued economic recovery and its dependence on iron ore, which is good news for the bulker market, he said.
Maritime Strategies International, a London-based consultancy, shared similar views, saying the supply of iron ore continues to be in deficit in relation to demand, thanks to China’s “robust” steel consumption, coupled with strong recovery in other countries. MSI’s senior dry bulk analyst Alex Stuart-Grumbar said that the trade tensions between Australia and China were also adding to sentiment as fears of a potential supply squeeze weighed in on the market.
The rising ore prices meant that charterers were increasingly motivated by maximising berth occupancy over the cost of freight, the analyst said, adding that Brazilian iron ore exports were also expected to increase significantly in the coming months, which should continue to support elevated capesize vessel earnings.
“Chinese attempts at reducing steel production over pollution concerns will increasingly come to fruition in the second half of the year, but policies have yet to significantly impact overall Chinese production, with steel producers enjoying the highest margins for several years,” he added.