The capesize bulker sector is looking better on paper than in reality, but industry experts are still quite optimistic about the physical market. The capesize 5TC, a weighted average of spot rates across five routes, has slipped by 24% over the past seven days. On Tuesday it slipped again to $25,032 per day, down by 2.3% since the last assessment by Baltic Exchange panellists on Friday.

Advances, however, are being seeing in the freight-forward agreement (FFA) market. Current-month contracts settled 4.5% higher on Tuesday at $29,500 per day, and July FFAs printed 7% higher at $35,632 per day, according to Baltic Exchange data. September contracts were the other biggest winner of the day, settling 7% higher than Friday at $34,496 per day and boding well for the third quarter. Physical rates may improve, however, because of news that Chinese steel mills may boost their output, according to John Kartsonas, founder of asset management advisory Breakwave Advisors.

Reuters reported on Monday that city officials within Tangshan, which accounts for 13% of China’s steel output, discussed whether steel mills should be allowed to ease production cuts. The Chinese government in March asked steel mills in this region to cut volume by 30% to 50% to improve air quality.

Higher prices for steel, iron ore and other commodities may also elevate spot rates, Kartsonas told TradeWinds. Chinese steel prices have jumped 38.5% year-over-year and reached RMB 5,837 ($914.45) per tonne on Tuesday, according to the SteelHome China Steel Price Index. “Plus, the Pacific market seems to have stabilized, at least for now,” Kartsonas said of the capesize market. “The second quarter is tracking close to $30,000 per day, so I think historically that the third quarter has been better than the second and that is what the market is saying.”

Talk of Chinese steel mills ramping up output and higher commodity prices make it difficult to sell future contracts and have therefore driven the upturn in the freight derivatives market on Tuesday, according to Kartsonas. “Premiums are now quite high though, so spot prices need to turn up soon, otherwise I am afraid another correction in freight futures is around the corner,” he told TradeWinds. “Futures in general are heavily influenced by sentiment, and sometimes such sentiment can flow through to the physical market. It is early in the week, but the spot market appears more stable and maybe, just maybe, we are closer to a turnaround.”

Global iron ore shipments for May came in at 132m tonnes, up 9.3% from April, according to Clarksons data. Australian iron-ore shipments rebounded 8% from April to 79m tonnes in May following further maintenance. Volumes are expected to accelerate through June to meet companies’ 2021 guidance. Shipments from Brazil improved to 31m tonnes, according to Clarksons, marking this year’s highest monthly volume and should seasonally continue to grow throughout 2021. These positive factors have left Seanergy Maritime Holdings chief executive Stamatis Tsantanis quite bullish on the capesizes, having bought five of them so far this year. “We do not expect any slowdown of iron ore imports from China any time soon, and Brazil is increasing their exports,” he told TradeWinds.

He also expects that his pure-play fleet of 16 capesizes will also benefit from the IMO’s 2022 Energy Efficient Existing Shipping Index (EEXI) by forcing ships to slowsteam. “The mandatory speed reduction of 10%-15% will have the equivalent effect on the effective vessel supply,” he said, “All things being equal, the supply squeeze can have massive benefits for capes.”