Capesize bulker rates have fallen considerably in the past three weeks but should pick up next year on the backs of a robust Chinese economy and high iron-ore prices, experts say. The weighted time charter equivalent (TCE) average for capesizes reached $34,896 per day three weeks ago but have fallen by more than 50% before reaching $18,606 per day on Tuesday, according to Baltic Exchange assessments.

The drastic drop happened as a result of a “steep correction” amid slower cargo flow and high vessel supply in the Atlantic Basin, Breakwave Advisors said in a bi-weekly report. Capesize rates should head back up, however, at the start of 2020 if Brazilian iron-ore giant meets its expectation to fill a 9 MMT gap between sales and production, the latter reaching 11 MMT. “Such a discrepancy is highly unusual, and it represents the highest deviation for any quarter since at least 2011,” Breakwave Advisors said.

But Vale is also optimistic about raising production by about 40 MMT, boosting tonne-mile demand on Capes. Beyond that, iron-ore prices should stay above $100 per tonne and thus incentivise miners worldwide to ship as much of the commodity as possible, Breakwave Advisors said.

“With less than three months till year-end, the prospects for 2021 start to look promising,” it said. “China’s economy seems quite strong while stimulus continues to make its way through the system.” The country’s demand for coal remains “solid” amid low inventories and other countries might start reopening their economies might give an added boost to capesize rates.

“Freight futures remain skeptical of such scenarios, trading at significant discounts to current spot levels, especially for capesizes,” it said. “We view such price fundamentals disconnect as an opportunity with the risk reward tilted towards long positions.”

The freight-forward agreement (FFA) for capesizes stands at $11,178 per day for January and $7,763 per day for February, according to Baltic Exchange data. Those FFA estimates showed up as global steel production for August that excludes China came in at 63.8 MMT, 7% lower than a year earlier, Braemar ACM said in its weekly report on dry bulk shipping.