Capesize bulker spot rates continue their slow decline amid market uncertainty as Brazil boosts iron-ore output, sector experts said. The capesize 5TC, a spot-rate average weighted across five routes, has fallen steadily since 24 May, registering a 40% slide to $19,845 per day on Tuesday, according to the Baltic Exchange. “We are sub-$20,000 now on capes, which to me is not surprising,” John Kartsonas, founder of asset management advisory firm Breakwave Advisors, told TradeWinds. “We expect capesize rates to bottom soon, but not really turn up to a significant way until later in the month.”

He said the market is betting on an imminent rally, but Breakwave Advisors is taking a different view. “Rather, a slower ascent might be in the cards, which eventually can lead to a spike, but our main scenario is rates bottom mid-month, turn up but fail to reach the futures level,” he said. The June freight-forward agreement rate (FFA) is “at the highest absolute premium to spot in many years”, but the paper market is running on high expectations that may only partly materialize, he said. FFA rates are all showing improvement through 2028 and are up at least $930 per day for the next three months.

He said vessel oversupply in the Atlantic basin is also depressing capesize rates, but tonnage should be taken up soon now that mine strikes in Colombia and northern Canada have ended. Data from UBS Evidence Lab shows Brazilian iron-ore shipments up 36% from the prior week and 38% year-to-date compared to 2020 to 9m tonnes, driven by producer Vale. UBS also noted that La Nina rains have subsided in Brazil’s iron-ore producing regions to allow for even higher output, but Brazilian iron ore at Chinese ports has fallen from a recent record high. “Tracking iron ore vessels outside of Chinese ports, we observe total inventory days were stable at 34 (below the 41-day average) this past week, including offshore stock, after declining in May,” the investment bank wrote in a note on Tuesday.

But uncertainty around Chinese steel demand continues to impact sentiment and commodities prices, leading to a 40% drop in steel rebar inventories since March, according to Reuters. This indicates easing demand, but it’s still too early to confirm that because extreme weather is slowing construction in China, Clarksons Platou Securities wrote in a note. “As reported by Reuters, the monsoon season is bringing rains to southern provinces while scorching temperatures hit the north,” it said. But capesize bulker rates should get a boost in the second half of 2021 off of seasonality for Brazilian iron-ore output, not to mention a slew of other upsides facing the sector, said Sevi Katemoglou, shipbroker and founder of Greek broking house Eastgate Research.

“Viewed from a macro perspective, the world’s post-pandemic economic recovery, healthy to strong demand for major dry bulk commodities, ample supply of those, soaring commodity prices, historically low orderbook-to-fleet ratio and projections for increased dry bulk tonnage utilization, all paint a rather bright picture for the short to mid-term,” she told TradeWinds.

Capesize rates may further rise on capesizes being hired possibly to carry two panamax-size loads iron ore and coal, she said. “It wouldn’t be unusual to witness certain panamax stems to be combined in order to be shipped via capes,” she said. “We shouldn’t also forget that we have recently seen grain cargoes shipped on capes. Albeit these are very rare instances and likely unable to have any major effect on the overall dry bulk shipping market, they are however telling of the market’s reaction to a heated panamax market.”

The panamax 5TC has gained 9.4% to $26,940 per day on Tuesday since 27 May. “A mixed market today for the Panamaxes with the Atlantic gaining further ground as many felt the tonnage count looked tighter in the north as good levels of demand continued to flow for the front haul trips from the north Americas,” the Baltic Exchange wrote on Tuesday.