Steep Supramax rates in the Asia-Pacific region to stay as available tonnage shrinks

Singapore — Supramax bulkers in the Asia-Pacific region are attracting steep spot freight rates on the back of a growing minor bulk trade and tonnage tightness caused by ships held up at Brazilian ports for grain loading.

The Supramax and Handysize bulkers have captured a major share of seaborne dry bulk commodity cargo volumes in January, with year-on-year increase in dry bulk exports moved on Supramax recorded at 8.7 million mt, followed by 6.2 million mt on Handysize, 2.3 million mt on Capesize and 600,000 mt on Panamax ships, according to Arrow Shipbrokers.

Helping hold up freight levels was weather disruptions in January that delayed Brazil's harvest for soybeans, leading to historically high ship delays at its grain ports.

Around 160 Panamax, Supramax, and Handysize ships were waiting at Brazilian ports for two to four weeks on average, exacerbating tonnage shortage in the Pacific for Panamax and Supramax ships, a report by shipbrokers Howe Robinson said.

The S&P Global Platts APSI 5 -- the regional Supramax weighted average index -- was assessed at $23,364/d on March 16, compared with the Kamsarmax KMAX 9 index at $22,190/d and the Capesize Cape T4 index $16,882/d.

One of the key Supramax routes to move iron ore from east coast India to China -- a Paradip to Qingdao 50,000 mt (plus/minus 10%) voyage -- is at an all-time high of $22.45/mt since the assessment was launched in June 2014.

"It's not a bubble. It's not going to burst and come crashing down. If you look at the FFAs [forward freight agreements], it could remain that strong going forward, and when Brazil's [grain] cargoes come into the market in April, [the Pacific] will be even stronger," said a chartering source with a commodities trader, adding that Indian exporters are fine paying an extra $1/mt on freight with iron ore price now at $160-$170/mt.

India exported 3.80 million mt of iron ore to China in December 2020, a 32% increase from November 2020, according to data from China's General Administration of Customs.

A few market participants said high freight rates were not sustainable going forward. "Based on existing factors, the general feeling is the market cannot sustain at these levels for long, and a correction should happen," a second chartering source said, adding that several types of cargoes like aggregates were being paid to be shipped above the product cost, which is not feasible.

The spurt in the trading volumes of minor bulks, which in January increased 10.3 million mt year on year, followed by grains that spiked 8.7 million mt on the year, have supported the Supramax market to a large extent. A major cargo for Supramax ships, coal, performed the worst in January, registering a drop of 5.8 million mt year on year, according to Arrow Shipbrokers.

India, one of the top seaborne coal consuming countries, lowered its January thermal coal imports by 4.94% at 14.24 million mt compared with January 2020, which were at 14.98 million mt, and 11.70% lower than December 2020 when imports were at 16.12 million mt, according to data from coal trading house Iman Resources.

Many market participants though forecast spot rates to appreciate rapidly. "Charterers may have to pay up with how fast the markets are moving. I don't believe charterers have the negotiating power [now]. Rates are going up and up every day, they might have to just take the lowest they see on the day," said the first source.

India's monsoon season, which normally hits the west coast in May and a month later in the east coast, looks to be the only break for soaring freights in the near future. A shutdown of anchorage ports along India's west coast has been scheduled on May 15.