The seasonal lull has taken hold of the dry bulk market, but, unsurprisingly, sentiment remains very optimistic. The Baltic Dry Index, the industry benchmark for the strength of dry bulk shipping markets that considers spot rates of main sizes of ships, has dropped since the beginning of the week. It was down to 3,139 points on July 14. The capesize average weighted time charter also fell 6.8% to $29,128 per day, compared with $31,266 on July 12. In line with this low figure, Freight Investor Services said in its daily capesize derivatives update that the paper market was very erratic, adopting a sheep-like mentality “with one minute the market bid with no offers, and then the opposite scenario just a few minutes later”.

“As the weekends, maybe it is time to pause, take a step back and let the market settle down a bit as the fundamentals here are good,” it said, adding that “the sheep won’t want to fall into a bear trap and find themselves as food for other predators.” Although the near-term outlook appears softer, it seems it is part of the natural volatility of the industry, Breakwave Advisors said. “We believe we are in the summer lull period, and as we approach early August, trade activity for forward September loadings will pick up, and with that, spot rates will once again turn higher.”

China has been supporting freight rates for the dry bulk with its stimulus packages. But the accelerating recovery in many other parts of the world have provided the dry bulk market with a new vigor since the beginning of the year. Arrow Research foresees the capesize fundamentals to be tighter in the third quarter versus the second quarter, which depends mostly on Brazilian iron ore exports, coal trade flows and inefficiency unwinding. It noted that the seasonality of iron ore freight demand is driven by Brazil as it increases production during the dry season. This typically results in the third quarter being the strongest month for Brazilian iron ore exports. Conversely with coal, the third quarter tends to be one of the weakest for capesize exports.

“If Brazilian iron ore exports comfortably exceed 2020 levels this quarter, and if capesizes continue to participate heavily in the (long haul) coal trade, then we expect the capesize market to experience further pockets of substantial tightness this year,” Arrow said. As coal prices are at the highest level in a decade, export volumes are likely to increase this quarter. “If this happens and volumes defy the usual third quarter slump, then these coal cargoes will be competing with iron ore cargoes at a time when Brazilian exports typically peak.”