After hitting a high of $86,953 per day at the beginning of the month, average Capesize rates have more-than halved, settling at $37,669 per day today.

There are naturally several factors behind this correction. The clearest is a slowdown in Australian iron ore shipments. Over September, we saw a surge in C5 (Australia—China) cargoes shipped and a scramble for tonnage in the Pacific, as Chinese iron ore buyers took advantage of the slump in prices to rebuild stockpiles. Volumes from the major Australian shippers jumped by 7.5% YoY to 76.6m tonnes last month, but this month, shipments are on track to decline by 3.4% YoY and 6.5% MoM to 71.8m tonnes.

With most of this jump in iron ore shipments heading to China, stockpiles at ports have climbed back to early-2019 levels of 140.2m tonnes, up by about 8% MoM. With steel production in China now trailing last year’s output levels by around 20%, it is likely that this restocking will slow down unless we see further significant falls in iron ore prices.

As rates have fallen, congestion in China has conversely remained high. Yesterday, queues of laden Capes waiting to discharge in China totaled 18.6m dwt (5% of the trading fleet), 7% higher MoM and 98% higher versus the five-year average for this time of year. Although there has recently been news of fresh outbreaks of Covid-19 in Chinese cities, the recent rise in congestion does not seem to be down to restrictions tightening. Though authorities are still extremely strict regarding vessels berthing and discharging, longer queues appear to be driven by greater numbers of ships arriving, following September’s iron ore buying spree.

Coal trade has provided greater than expected strength to the market in recent weeks, but it remains limited by cargo supply. Amid extremely high coal prices, we had hoped to see some more tonnes come from South Africa and the Atlantic exporters, such as the US and Colombia. However so far this month, the volume of coal cargoes on the water utilizing Capesizes has remained below levels seen earlier in the year.

Combined with many ballasters heading into this basin and growing concerns over the rainy season in Brazil hitting iron ore supply, this is putting more pressure on C3 rates. Recent moves from regulators in China have also squashed prices, and although it remains to be seen how sustainable this trend is, this may soften the appetite of Chinese coal importers.

Despite the massive fall in rates, the market is still strong compared to what we have been used to over the past few years, and spikes are always to be expected in the Cape market. After all, spot indices are still printing at levels equivalent to the peaks seen over the last decade.

As Q4 fades into Q1, we expect the usual negative seasonal effects to take hold, such as a further slowdown in Chinese industrial activity, cyclones in Australia and wet weather in Brazil, but the Covid-related issues that have been supporting the market for much of this year will still likely be present. We see congestion continuing to play a significant role in restricting the effective carrying capacity of the fleet well into 2022, along with 14-day quarantine requirements for Australia loadings, which have artificially tightened the Pacific market. These kinds of effects should continue to disrupt the market and provide some floor to rates in the months to come.