Many in the capesize market have been waiting for stronger fixtures to shore up sentiment, but those people were still waiting on Thursday, causing a big fall in physical rates and a selloff in the derivatives market. Although more deals came to the fore on Thursday, reported rates were markedly lower than those seen earlier in the week. “It’s only temporary but getting sold off at the minute. We have too many ballasters arriving in Brazil for July,” a capesize broker told TradeWinds on Thursday.
Panelists assessed rates on all the Baltic Exchange’s benchmarks lower on Thursday. The capesize 5TC, the weighted average of spot rates across five key routes, declined for the second consecutive trading day and was assessed $2,004 lower than Wednesday at $30,600 per day. Rates on the iron-ore voyage from Brazil to China were estimated on Thursday at $26.63 per tonne, 70 cents lower than the previous day. Brazilian miner Vale reportedly booked Minerva Marine’s 177,800-dwt Monemvasia (built 2009) on the route at $25.50 per tonne, loading in mid-July.
Meanwhile, 62 cents were wiped off the assessment for the rival route for ore from Western Australia to China, which Baltic panelists put at $11.432 per tonne. Mining giant Rio Tinto reportedly fixed Capital Ship Management’s 179,200-dwt Cape Agamemnon (built 2010) at $11.40 per tonne on Thursday for an ore trip to China, loading in Australia in mid-July. This is 50 cents lower than a deal reported on Thursday, when the miner fixed an unidentified capesize for the same trip for the same dates. Two weeks ago, Rio Tinto agreed a price of $12.40 per tonne when it fixed a capesize — G Marine’s 178,900-dwt Attikos (built 2012) — to carry Australian ore to China, loading from 4 July.
But the real drama of the day was seen in the freight derivatives market for capesizes on Thursday. A selloff in the FFA market began on Monday and capesize contracts have settled lower each day since — but nothing this week has compared to the selloff seen on Thursday. Worst affected were July contracts, which settled 11% lower than the previous close at $31,875 per day, having fallen by a huge $4,082. August contracts hardly fared much better, falling by $3,618 — equivalent to 9% — to $36,257 per day. FFAs for the third quarter fell by $3,282 to $35,020 per day.
Norwegian shipbroker Fearnleys said that deals in the physical market this week have not been strong enough to support sentiment. “Towards end of last week there were some stronger fixtures for August dates in line with FFA [freight forward agreement] values. This as well as firmer rates for smaller segments suggested spot rates would improve but rather the opposite happened,” the broker’s research team said in a market report on Thursday. “West Australia rounds is presently around $12 per tonne and Brazil around the $26 level.” But Fearnleys thinks that the dip in the market will only be temporary. “Even though a correction of some degree now looks likely, we remain optimistic on market prospects for the coming months,” the broker said its report.
Capesize spot rates have been volatile lately, but there appears to be no problem with the underlying fundamentals. Tonnage is being taken out of the market by inefficiencies and distortions caused by the pandemic and trade disputes, which has helped to keep rates firm. Australia, for instance, requires ships to be at sea for a minimum of 14 days before they can call at its ports, which means ships either have to slow down or spend an extra few days at anchor before loading in the country. This has had a beneficial effect on spot rates in the Pacific, according to research by Braemar ACM Shipbroking. “For ships opting to change crews in the Philippines, a popular option, the 14-day clock is reset at this point, and more time must be spent idling as a result,” Nick Ristic, Braemar’s dry cargo analyst, said in a report last week. “The upshot of this effect is that over the first half of this year, capesize demand per tonne of cargo on a C5 voyage from Australia to East Asia has been 15% higher than the pre-pandemic average. As a result, capesize fleet utilization has received a leg-up, despite cargo volumes seeing only limited gains.”