Asia's Capesize makes sharp recovery on robust demand, fleet dislocation

Singapore — Asia's Capesize time charter equivalent rates climbed out of the tight range it had been trading in since August in the week ending Sept. 25, driven by consistent Chinese demand for iron ore imports and a short-term fleet dislocation, which resulted in fewer ballasters to load out of Brazil for October dates.

On Sept. 24, the Platts Cape T4 Index for Capesize ships burning 0.5% sulfur bunker fuel was assessed at $25,486/d, a level not seen since July 7 and 51% higher from a week ago on Sept. 18.

The upbeat momentum started from the Pacific since mid-September as Western Australian miners actively sought tonnage to cover their positions.

Following a flurry of spot fixtures, ships have been digested by the Pacific, leaving fewer ballasters, especially those arriving in Brazil during second-half October, a Chinese Capesize owner said. As a result, there has been a substantial rebound in the key Brazil-China iron ore route.

A shipbroker expects trading activity to increase ahead of China's Golden week Oct. 1-7 holiday as many market participants will be away from the market during that week.

"Both ballasting [towards Atlantic] and a Pacific round voyage are paying decent money at the moment," a Singapore-based ship-operator said. "But, the improving Atlantic market is increasing owners' ballasting interest," he added.

Some market participants though, held a cautiously optimistic outlook amid the surging Capesize freight rates. "The rebound is quick and firm, but I doubt how long it will last," a third ship-operating source said.

A third shipbroker said that it is unlikely Platts Cape T4 Index rates for Capesize will exceed the year's high of $31,901/d reached on July 6.

"Those pushing up the market and taking in ships have also been operators, and it remains to be seen if they have a cargo behind or if its speculation," the same shipbroker added. The uptrend will only be able to continue if it is supported by real physical cargo demand.

"The iron ore stockpile in China is very stable now, at about 115 million mt and [Capesize] vessels queueing at the [Chinese] port has declined," the first shipbroker, who expects iron ore shipping demand to China to cool off in the coming weeks, said.

There has been a long queue of ships waiting to discharge at Chinese ports for some time already, but the situation has eased somewhat with most Capesize ships discharging their cargoes at the moment.