The dry bulk market is pricing in a ramp-up in iron ore exports over the coming months, which should aid capesize freight rates. But can the volumes expected in what are traditionally strong quarters, be achieved, given the many problems some miners faced in the first six months of the year?

Rio Tinto, Australia’s largest miner, said it is expecting iron ore shipments at the lower end of its 325m-340m tonnes full-year guidance range, which “remains subject to Covid-19 disruptions” and operational issues. Shipments from Pilbara in Western Australia dropped 12% in the second quarter to 76.3m tonnes. The first half saw volumes slide 3% to 154m tonnes. “The global economy, in particular China, recovered strongly and we are intensely focused on servicing our customers with as much product as we can,” said Rio Tinto’s chief executive Jakob Stausholm. “However, we faced some challenges in the first half, notably at our Pilbara operations, which were impacted by replacement mine tie-ins and materially higher rainfall. Heightened Covid-19 constraints, which resulted in numerous travel restrictions, added further pressure on the business and limited our ability to access additional people.”

US-based Breakwave Advisors said that market confidence was “shaken” due to a capesize tonnage overhang for July loadings, which led to a softening in spot rates. However, as Brazil “begins its seasonal ramp-up in iron ore exports, thus absorbing more vessels for August loadings, the bottom on spot rates seems ever closer”, it said in a note, adding that there is a potential to surpass the highs seen in May, when almost $45,000 per day was achieved. “The reason for our optimism lies in the fact that a seasonal upturn in iron ore shipping demand will come on top of the ongoing solid demand for coal transportation, a rather unusual coincidence that has the potential to significantly tighten vessel supply.”

Arrow research echoed the views, saying that growing coal exports was aiding the capesize sector, with a high correlation in the second quarter. “If Brazilian iron ore exports comfortably exceed 2020 levels in the third 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,” it said in a note. The average weighted capesize time charter on the Baltic Exchange inched up to $30,098 per day at the close on Thursday, from $28,694 a week ago. Forward freight agreements for August lifted to $36,000 per day on Wednesday, from $34,750 the day before, while the third quarter was priced at $34,500, a gain of $900 in a day, according to GFI broker figures.

Brazil’s mining giant Vale is maintaining its full-year guidance of 315m-335m tonnes, after iron ore production reached 75.7m tonnes in the second quarter, up 11% from the first three months of the year. That takes its first-half output to 143.7m tonnes. Vale expects to produce an average of 1m tonnes per day during the second half of the year, due to better weather conditions. Sales of iron ore reached 67.2m tonnes in the second quarter. That is almost 90% of its output. In a report, it said it achieved a production capacity of 330m tonnes per year, due to full output from the Serra Leste complex, although the timing of start-up of other operations had to be revised, awaiting permits. The miner does not expect any impact to this year’s shipments following the restart earlier this month of shiploader six at the Ponta da Madeira terminal following a fire in January. 

Ship brokerage Simpson Spence Young said that with iron ore prices rising ever-higher, cargo availability is proving key for the seaborne market. It said that liftings by the 325,000 dwt guaibamax fleet rose to 15 in June, double those of the previous month, while those of the 400,000 dwt valemaxes numbered 16, in line with May, but down from 19 in June last year and 25 last August. With the growing fleet in these sizes, there was potential for higher volumes to be shipped on dedicated tonnage, although the rate of liftings has been constrained by port congestion in China and higher-than-average turnaround times at Brazilian ports, it wrote in a note. “With the third quarter marking the strongest quarter for Brazilian iron ore exports in four of the last five years, another quarterly gain is in prospect,” Simpson Spence Young said. Maritime Strategies International, a London-based consultancy, also expects the higher Brazilian volumes to support the capesize sector as a 12% increase would translate to an additional 85 loadings. “These additional volumes are expected to absorb sufficient tonnage to mean capesize rates will be well-supported for the final two months of this quarter, although we are less positive for the fourth quarter on the back of a cautious outlook for Chinese import demand as the government acts to rein in rising inflation,” it said in a note.

Meanwhile, BHP is expecting to produce 249m-259m tonnes of iron ore in its 2022 financial year. It reported output of 253.5m tonnes in this financial year. Its metallurgical coal production declined by 1% to 41m tonnes, with output expected between 39m-44m tonnes next year. The miner expects restrictions on coal imports into China to remain “for a number of years”. Thermal coal decreased by 17% to 19m tonnes, with further reductions expected to 13m-15m tonnes in the next financial year, which reflects its divestment of its 33.3% interest in the Cerrejón operations in Colombia, as announced last month. Weather impacts saw output from New South Wales, Australia, drop 11% to 14m tonnes, with 13m-15m tonnes targeted for the new financial year. A damaged shiploader at the Newcastle port is expected to be back in service in the coming weeks.

Anglo American tightened its full-year iron ore production guidance to 64.5m–66.5m tonnes from a high of 67.5m, dependent on the extent of the pandemic disruptions, while its coal range was unchanged at 14m-16m tonnes. The miner has demerged its South African thermal coal operations and has sold its 33% stake in the Cerrejón operations, which is expected to complete in the first half of 2022, subject to regulatory approvals.