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DRY BULK: Capesize Brazil to China rate at decade high as ship supply tightens


Freight up on spike in Brazil iron ore demand

Fewer ballasters heading to Atlantic for Sep loading

Increasing FFA rates paint bullish outlook

  • Author
  • Carina Li
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Oil Shipping

Capesize freight rates on the key iron ore route from Brazil into China hit a decade high on Aug. 18 on bullish fundamentals and the resurgence of activity in the Atlantic region.

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Strong demand for shipping iron ore out of Brazil, firm sentiment in the Forward Freight Agreement, or FFA, rates and tighter tonnage supply due to congestion at Chinese ports have driven freight rates higher.

The freight rate for a Capesize ship to move 170,000 mt (plus/minus 10%) iron ore cargo from Tubarao to Qingdao was assessed Aug. 18 at $34/wmt, marking a decade high, and the highest since $37.50/mt assessed on May 14, 2010.

The Pacific market was not to be left behind. The freight rate for iron ore from Port Hedland to Qingdao was assessed Aug. 18 at $15.40/wmt, the highest since $15.75/mt assessed on Dec. 12, 2013.

The S&P Global Cape T4 index, a weighted average index of the most liquid Capesize routes, reached $46,036/day and $49,219/day on Aug. 18, basis vessels burning 0.5% sulfur marine fuel and HSFO separately, the highest since its launch on Nov. 1, 2019.

"The market is definitely demand-driven, while the continuous congestions off China [due to COVID-19 related protocols] is also tightening tonnage supply," said a ship-operating source.

"The freight derivative [FFA] market is supporting the physical market for Q3 extremely well. Even Q4 is moving towards $40,000/d," a ship-owning source said, while adding that there was a positive outlook for the Capesize rates to increase further on the back of the strong fundamentals.

"At the moment, the strong Brazil to China route is driving the market," said a second ship-owning source, adding that the number of ballasting ships that could make Brazil for September loading window was very few.

Brazilian mining major Vale's iron ore exports reached 152.95 million mt as of January to July 2021, up 9.5% over the same period of 2020, according to Platts' trade-flow software cFlow.

Since the second half of July, Platts Time Charter Equivalent, or TCE, assessments on the Western Australia to Qingdao route were at an average premium of $6,700/d over the Brazil to Qingdao route.

With the Pacific round trips paying better, ships stayed within the region instead of heading over to the Atlantic basin. This resulted in tonnage supply eventually tightening in the Atlantic Basin, especially for September loading dates.

Owners' preference between ballasting out of the Pacific and staying within remained divided.

"Both basins are paying well, even though I would say Pacific [round trip] still pays better," the second shipowner said exhibiting his preference for the Pacific.

"With Brazil market on fire, I am sure owners who can make September [loading dates at Brazil] will go for that," said another ship-owning source.