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Capesize iron ore freight rates hit 2017 high on robust vessel demand

Highlights

Capesize iron ore freight rates hit a 2017 high Thursday on all key iron ore routes from Australia, Brazil and South Africa to China on robust tonnage demand and seasonal pickup coupled with a firming freight derivative market.

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The busy Port Hedland, Western Australia, to Qingdao, China, 170,000 mt (plus/minus 10%) route was assessed at $7.50/wmt, the highest so far this year. The previous 2017 high was $7.20/wmt on March 28.

"There are still quite a lot of requirements in the Pacific region and with the thin number of ballasters [into the Atlantic market], it seems like charterers are looking at ships in the Pacific basin. This is generating quite a bit of competition for vessels," a Singapore-based shipbroker said.

Capesize iron ore freight rates hit 2017 high

The push in the Port Hedland-Qingdao freight rate saw the time charter equivalent (TCE) assessed at $19,308/day on this route Thursday.

"[Shipowners] are weighing their options and depending on their portfolio and risk appetite, they can consider taking a shorter voyage. They are hoping for a stronger market in Q4 or are looking at locking their vessels in a long voyage at today's rates," the shipbroker said.

A lack of ballasters into the Atlantic market has boosted freight levels on the Tubarao, Brazil, to Qingdao front haul route and also the Saldanha Bay, South Africa, to Qingdao iron ore run.



The Tubarao to Qingdao 170,000 mt (plus/minus 10%) route was assessed Thursday at $17.25/wmt, which corresponded to a TCE of $19,308/day. The Saldanha Bay-Qingdao 170,000 mt (plus/minus 10%) route was assessed at $13/wmt, with a TCE of $19,879/day.

The Tubarao-Qingdao route last hit a high of 16.80/wmt on March 29 while the Saldanha Bay-Qingdao voyage hit a high of $12.70/wmt on March 28.

"Everyone is bullish, it's a seasonal upswing and the market has been in a lull after it hit its earlier high around end-March -- and the paper and physical market dynamic has also changed," said a source with a Capesize shipowner, adding that the paper market was now playing catch-up with the physical rates, resulting in both markets spurring each other on.


COMMODITY PUSH


The uptrend in the Capesize is also being supported by a strong dry commodity market.

"I would say the spike in the iron ore prices and the healthy steel market definitely has something to do with the bolstering Capesize freight rates," said Ralph Leszczynski, research director at Banchero Costa, a Genoa-based shipping consultancy and brokerage.

Leszczynski said that a recent statement from Chinese Prime Minister Li Keqiang that it was necessary to shut down more "low-quality" and illegal steel mills had raised expectations of stronger high quality iron ore imports.

Fearing steel shortages in Q4 2017 and Q1 2018, participants are said to be stepping up the stockpiling steel currently, the Banchero Costa research director said.

While the mood is upbeat in the Capesize segment, some market watchers feel the burgeoning vessel supply side could be a concern.

"The market seems like it is firming up on sentiment, but I am concerned that the current supply of ore is more than matched by the supply of ships," said a chartering source with a mining company.

Over the last two years, the oversupply of Capesize vessel was keeping a lid on freight levels.

According to Leszczynski, 69 Capesize plus Very Large Ore Carrier newbuilds have been delivered so far this year, the same as in the corresponding period last year.

However, demolitions of older Capesize tonnage have taken a backseat with just 20 vessels torched year to date compared with 71 ships in the same period last year.

--Andrew Khaw, andrew.khaw@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal

Note: Updated to include details on dry commodity market supporting Capesize freight