China’s reported loosening of zero-Covid-19 policies to boost its economy has breathed some near-term optimism into the capesize bulker sector. But the country’s real estate industry will truly determine its fate in 2023, market experts said. Average spot rates for capesizes have spiked since China announced sweeping changes to the austere measure two weeks ago, while those for the smaller vessels have languished.

The Baltic Exchange’s Capesize 5TC set of spot-rate averages across five key routes has improved 45% since the 7 December notice to reach just over $19,600 per day on Tuesday. But the rapid upward trend may be more sentiment than substance, according to Breakwave Advisors, an asset management firm that runs a dry bulk exchange-traded fund. “Sentiment across investments and sectors that are levered to China have also seen a revival, albeit a brief one,” the New York-based company wrote in a report published on Tuesday. “Now, more concrete steps are needed to bring back some type of demand that only real economic activity can create. Is such a turnaround about to take place?”

Capesize demand to carry ore on benchmark routes to China from Brazil and Australia has been lackluster for the past several days as the last such fixture was signed a week ago, according to the Baltic Exchange. China is indeed under pressure to ease Covid-19 restrictions, but the country is not loosening them, despite wide reports to the contrary, because people there are still working from home due to vast outbreaks of the virus, said Giuseppe Rosano, founder of UK broking house Alibra Shipping. “Chinese Year new is also around the corner, and we do not expect any change in the market until the middle to the end of the first quarter of 2023 when we can see some uptick in some normalization,” he told TradeWinds.

Breakwave argued that the fate for capesize spot rates comes down to what happens with China’s real estate sector, which accounts for most of the country’s iron ore imports but has struggled for the past year as bankrupt developers failed to make good on billions of dollars in debt. “In our view, all eyes should be on the upcoming real estate statistic releases that will provide some clues on whether activity is picking up but also what type the magnitude such a recovery might be,” Breakwave said. “Land sales, new developments and loan growth remain key elements in identifying a change in trends.” The government is trying to reverse the liquidity crunch by offering billions of dollars in special loans to developers, but almost a third of all property loans still consist of bad debt, Bloomberg has reported. The futures market paints a gloomy picture for next year’s capesize market because of the industry’s feeble state, not to mention that Asia’s manufacturing sector is set to shut down next month for Chinese New Year, Breakwave said. “Any attempt to price a more aggressive path for the spot market is forcefully destroyed by the hedging books of commodity traders.”

Forward freight agreement rates improved on Tuesday but were still lagging well behind the physical market. January contracts for capesizes gained 28% on Tuesday to reach $11,932 per day, while February contracts improved 18% to come in at $7,786 per day. But the capesize market has always been unpredictable, so how it will start 2023 is anyone’s guess, Breakwave said. “We wonder what would happen if traders woke up with a strong hangover on New Year’s Day and are faced with a high-double digit index and the usual strong first week of the year for fixing activity looming?” Breakwave wrote. “We hope the NYE [New Year’s Eve] party was worth the headache, Happy New Year and a prosperous, healthy 2023.”