29-09-2021 Identifying the roots of this cape rally, Splash Extra
Heading into the peak season, with capesize freight rates becoming ever more volatile, being at the right place for the right fixture is crucial. Spot rates out of Western Australia are the driver this time, breaking the $20 a tonne glass ceiling, up from $12.5 a tonne a fortnight earlier. At the same time, the more relevant bellwether for the entire market seems to be facing some obstacles, not enjoying the same upside from Chinese port congestion apparently as the capes.
Knowing a rally when you see it is one thing. Finding out what caused it is a completely different matter. Surely the mighty buying power of China is behind the present lift of freight rates. But shipbrokers who claim that they called the 2021 rally long before it unfolded are barely more than lucky braggarts. While Splash Extra has the deepest respect for those who took a chance and got lucky, those who knew it all in hindsight when the market finally went up after multiple failed calls do not deserve much respect in that regard.
Regular readers of Splash Extra will also know that we still see this market as surprisingly strong as we recognize all the temporary support factors underpinning the current market remains intact as we enter the final three months of 2021.
Will the debt crisis of China’s Evergrande Group, a massive property developer, prove to be the Waterloo of the dry bulk market? Splash Extra believes that the event is a symptom of current Chinese policies, signaling that the housing market is now past its peak, and this is going to impact dry bulk shipping for years to come.
In the short term, it’s more relevant to focus on iron ore imports that stay strong as you see through the mirage of Chinese iron ore imports in June to October last year. During those five months, a total of 530m tonnes were imported. This means that monthly year-on-year volume growth rates for those months will be negative in 2021, while imports are in fact strong. Splash Extra expects the same pattern to be noted for soybeans, whereas Chinese coal imports are just a different game, mostly impacted by phony import data and geopolitics.
It was the national sport of shipping over the summer, guessing who had taken containers onboard for a bulker voyage. Quite a few rumors circulated, including some where the bulker all but capsized. Genco Shipping is among the first officially confirmed, and most importantly it has a proper class approval to carry containers on deck as well as in cargo holds. An estimated 1,300 teu can be carried by a capesize whereas an ultramax can take up to 700 teu. Do it right if you are listed, don’t do it at all if you are not approved to do it, though the money must have been attractive if an owner were risking his/her ship, let alone the crew.