The capesize bulker market fell sharply for the second consecutive week amid steadying prices for iron ore and coal. The capesize 5TC, a spot-rate average weighted across five routes, plummeted 23% over the past week to $51,463 per day on Friday, matching the prior seven-day drop from $83,865 per day. The rapid descent is a correction from a spot-rate “squeeze” caused by charterers scrambling for capesizes amid spiking iron-ore and coal prices, said John Kartsonas, founder of asset-management advisory firm Breakwave Advisors. “Traders needed to secure vessels to make cancelling days or risking a significant loss on the trade, as commodity prices swung wildly from day to day,” he told TradeWinds. “This is now correcting, so the urgency to secure ships in order to transport the already purchased materials at the prevailing prices has now cooled down.”

The price for iron ore jumped 10.3% in four days to $130.24 per tonne on 11 October before falling in two days to $122.29 per tonne, according to the New York Mercantile Exchange. The price has remained stable since then, coming in at $122.89 per tonne on Thursday. Coal has seen similar price volatility over much of the same period, soaring 36% over nine days to $274.50 per tonne on 5 October before falling 16.2% to $230 per tonne in three days. It has since then slipped 0.7% to $228.50 per tonne on Thursday.

It is difficult to forecast where spot rates will go amid such volatility, but they could lose another $20,000 per day by next month, if not December, Kartsonas said. “When all is done and settled, I do believe November and December averages will have a 3 in front,” he said. “I do believe the smaller size vessels will act as resistance once the spot approaches such a level.”

Australia’s Rio Tinto plans to hire a to-be-named 170,000-dwt capesize to ship iron ore from Australia to China at $14.10 per tonne during the first half of November. The freight rate for a capesize on the benchmark Australia-China route lost $1.24 per tonne on Friday to come in at $14.264 per tonne.

The capesize sector had a “pretty bleak week” amid falling demand in China and less production in rain-soaked Brazil, but the paper market has been signaling a decline, said Nick Ristic, lead dry cargo analyst at Braemar ACM Shipbroking. “FFAs (forward freight agreement rates) are certainly pricing a fall below $50,000 per day very soon, but the curve has been heavily backwardated for quite some time, so I don’t think you can say it was unexpected,” he told TradeWinds. “The fundamentals would suggest that we’ll see things continue to slide into the first quarter of 2022, but as always with capes, we can’t rule out a fourth-quarter spike.”

Stamatis Tsantanis, chief executive of pureplay capesize owner Seanergy Maritime Holdings, chalked up the falling spot rates to the volatile nature of this dry bulk sector. “The market went up too high too fast and now it is correcting to these levels,” he told TradeWinds. “We do not see any material changes in demand-supply fundamentals. On the contrary, we believe there is going to be another spike before the year-end. “We also remain very bullish for the future fundamentals.”

Supramax spot rates could erase their gains as they near $40,000 per day on average because more tonnage may become available. Demand for these smaller-sized bulkers has been driven by elevated congestion, increased demand for coal amid a power shortage, and the containerization effect.

Rates could soften in the coming weeks as more vessels open, a Hong Kong-based operator said, adding that coal from Indonesia to China or India was the only trading lane seeing increases in freight.

Braemar ACM noted that about 30 vessels would become available in southeast Asia over the next fortnight, with several owners offering period charters around the $37,000 per day mark.  A lack of iron ore cargoes into India was also making a dent on earnings, it said, with the only bright spot being continued strong grain shipments out of Australia.

The average weighted time charter dipped 1.1% to $39,421 per day at the close on the Baltic Exchange on October 22 from a decade-high of $39,860 in the previous session.

Maritime Strategies International noted how strong nickel ore trade from the Philippines to China was reaching a seasonal peak and was expected to decline in the coming months.  It also expects slowing demand for raw materials from China to add downwards pressure on earnings, which could fall 25% into the first quarter of next year.

However, if congestion fails to unwind, there could still be some upside potential.

Supramax rates have been outperforming other segments, except capesizes, although the gap between the larger panamax bulkers was narrowing given that this size category continued to rise, closing out the week at $38,945 per day.

Norwegian shipowner Belships has fixed another two of its ultramax bulkers out on long-term charter. On Friday, the Oslo-listed company said the two unnamed vessels will start contracts of 23 to 25 months at a gross rate of $25,500 per day at the start of next month. A bulker market source said the pair are the Hantong-built 63,300-dwt Belpareil and Belsouth (both built 2015).

Chief executive Lars Christian Skarsgard told TradeWinds that the company has a third of its fleet covered for next year, with the remainder open for business. “So, we are there to fix further vessels for period charter,” he said. “This is not just risk management. We like to have contracts with strong chartering companies. It’s good to create long-term relationships.”

Meanwhile, Skarsgard said there are other reasons to feel optimistic about the supramax and ultramax segment, in which Belships specializes. “I do not know where the spot market will go, but I’m pretty sure ship values should continue to increase,” he said.

The shipowner last week fixed its 63,000-dwt ultramax Belhaven (built 2017) to an unnamed charterer for 22 to 24 months at a gross rate of $26,250 per day, starting this month. By way of comparison, average supramax spot rates were assessed on Friday at $39,860 per day, according to Baltic Exchange data.

Belships has continued to be active in the sale-and-purchase market this month, buying two secondhand vessels and circulating an elderly supramax for sale.

Once all its acquisitions have been delivered, Belships said its fleet will be made up of 30 supramax and ultramax bulkers, with an average age of four years and average daily cash breakeven of about $10,500.

China has moved from the largest cement exporter in 2017 to be, from 2019, the largest importer.

China is importing from Vietnam and Thailand forcing their usual customer, Bangladesh, to source cement clinker (c.10 MMT) from Pakistan, UAE, and other countries in the Middle East.

This change in trading pattern has placed further demands on ships in the Indian Ocean making it the place with the highest rates in the Handy and Supra-Ultra sectors.

Chinese imports have marginally reined back this year (almost certainly due to sky high freight) but are comfortably still the largest in the world having fallen by 3 MMT YOY between Jan-Aug 2021.

Whilst the vast majority is shipped in clinker form, mainly in Supras, we see growth in powdered cement being carried in smaller Handy and self-unloading specialist ships.

Vietnam’s pre-eminence as the main supplier remains unchallenged (14 out of 18 MMT) and is the only country to increase exports to China in 2021.

Vietnam’s increased meat consumption has made the Southeast Asian nation a “feed importing powerhouse” according to the US Department of Agriculture (USDA). And with much of the imports coming from markets as far afield as Brazil, India and the US, the dry bulk sector has become a key beneficiary of this trend, according to Simpson Spence Young (SSY).

Vietnam’s meat production is forecast to reach a record 4m tonnes this year which has acted as a key driver in demand for animal feed. Over the past five years Vietnam has seen corn imports overtake domestic supply as local farmers have been unable to compete with imported corn both on price and quality. “Vietnamese customs data reveal that imports of corn are dominated by long-haul trades from Argentina and Brazil, with marginal volumes imported from India and Thailand,” said SSY.

According to the International Grains Council’s five-year projections released in January, Vietnamese imports of corn were expected to “advance strongly” to 14.2m tonnes by the 2025/26 market year. “The longer-term export outlook for one of Vietnam’s largest suppliers, Brazil, is positive despite recent annual declines, with shipments expected to rise by 8.9m tonnes from the 2020/21 market year to 44m tonnes by 2025/26,” said SSY.

“The respective increases in supply and demand, combined with the possibility of an increase in imports from Argentina, would potentially be a positive for bulker tonne-mile demand over the next five years. Meanwhile, a growing interest in US corn, currently a residual supplier to Vietnam, provides a further example of potential increases in tonne-mile demand,” SSY said. Less competitively priced US corn has gained increased attention from Vietnamese importers over the January-August period this year, with US shipments of corn more than doubling on the 2020 total, reaching 500,000 tonnes. SSY said an announcement from the Vietnamese government of a tariff reduction on US corn and wheat in August could help stimulate US grain imports.

Meanwhile, Vietnamese customs data reveals that shipments from India reached 1.1m tonnes in the first eight months of 2021, compared to less than 100,000 tonnes in the whole of 2020. While corn makes up most of Vietnam’s grain feed, SSY said wheat is considered an interchangeable energy source in some feed formulations. “In an attempt to replace lagging corn imports, Vietnam has ramped up inbound shipments of wheat, to the benefit of supramax and panamax demand in the Pacific,” SSY said. “The country imported 3.7m tonnes of wheat in the first nine months of the year, up 1.7m tonnes annually.”

SSY said Australia’s re-emergence as a leading wheat exporter to Southeast Asia has involved a revival of its trade with Vietnam. “Vietnam was one of Australia’s main destinations for wheat exports in August, with the country re-emerging as the largest supplier of wheat for Vietnam, accounting for nearly 80% of confirmed shipments in the year to date,” the shipbroker said. “In contrast, Australian wheat comprised slightly less than 30% of the country’s imports last year. Given the underlying growth trend for Vietnam’s grain consumption and another strong year for Australia wheat exports forecast ahead, this has positive implications for this trade in 2022,” SSY said.

Shipowners have contracted twice as many new vessels so far this year compared to 2020, driving prices up steeply. Clarksons Research data shows 1,259 orders placed with shipyards to 30 September. These represent 98.1m dwt of new capacity, up 99% from 2020, while the deals total 37.5m in cgt terms, a jump of 121% from the same period last year. In September alone, 116 vessels of all types were contracted, with a capacity of 6.5m dwt.

The research of arm of UK shipbroker Clarksons had already revealed earlier in October that boxship orders had reached 470 vessels of a combined 3.9m teu as of 30 September, the highest ever at this point in a calendar year. Of these, 57 units of 700,000 teu are set to be LNG dual-fuel capable, while nine ships of 100,000 teu will be able to run on methanol.

September saw only five tankers of a combined 62,300 dwt ordered in continued weak markets. This brings the year-to-date total to 196 vessels of 19.2m dwt, including deals for 15 LNG dual-fuel VLCCs.

In the bulk carrier sector, 287 vessels of 26.9m dwt have been added to the orderbook so far this year — up 59% from 2020. This newbuilding interest, combined with rising steel prices, means ship prices are on the up.

The Clarksons newbuilding price index stood at 149 points at the end of September, rising to 150 points in early October, its highest level since the first half of 2009. The guide price for a 23,000-teu containership is $182m, up 28% year on year. A 15,000-teu vessel now costs $150m — a rise of 42% since January.

Clarksons Research said a 180,000-dwt capesize bulker is up by 30% at $60.25m, while a 38,000-dwt handysize has become $6m more expensive at $29m.

LNG carriers have seen costs jump too, with a 174,000-cbm unit now costing $16m more at $202m. Yards now have 3,190 ships of a combined 199.6m dwt on their books. This is equivalent to 9.2% of the fleet and represents a rise of 15% over 2020, but this is still a relatively low level compared to previous order booms. But strong ordering in the LPG carrier sector has left the figure at 23.5% of fleet capacity for this vessel type, up from 14.3% as of the end of 2020.

The bulker orderbook has shrunk by 8% in a subdued year of ordering in comparison to other sectors. The total of 693 vessels of 60.8m dwt represents 6.5% of fleet capacity — the lowest level for 30 years.

Clarksons Research forecasts the operational world fleet will grow 3.1% over the whole of 2021, up slightly from an increase of 2.8% in 2020. Recycling activity has remained limited this year, with just 497 vessels of a combined 18.5m dwt reported sold for demolition so far.

The market for capesize bulkers should continue declining amid lower iron-ore and steel production for the rest of 2021, according to brokers. The capesize 5TC, a spot-rate average weighted across five key routes, slid 4.9% on Thursday to $57,374 per day, making for a rapid decline of 34% over the past two weeks. The paper market pointed to even lower rates well into next year’s first quarter, according to Baltic Exchange data. The forward freight agreement (FFA) rate fell steadily over the next five months to $23,057 per day for February after losing $622 per day.

Lower iron-ore guidance for 2021 from behemoths Vale and Rio Tinto and China’s plans to curb steel production are weighing on market sentiment, said Rebecca Galanopoulos Jones, head of research at London broking house Alibra Shipping. “The latest figures from the World Steel Association forecast that for 2021 as a whole, steel production will contract by 1% from last year, with growth in 2022 expected to be flat,” she told TradeWinds.

China’s annual steel demand is expected to stay at 985m tonnes through 2022 amid a slowing real-estate sector and government cap on steel output for environmental reasons, according to association statistics.

On Wednesday, Vale lowered its fourth-quarter production forecast for high-silica, low-margin iron ore by 4m tonnes amid less demand. “This movement does not change our production guidance for the year, of 315m tonnes to 335m tonnes but should take us below the middle of the range,” the Brazilian miner said. “If this scenario persists, we should also reduce the offer of low-margin products in 2022 by around 12m to 15m tonnes. The purchase level of third-party ores may also be adjusted accordingly.” A week ago, Australia’s Rio Tinto lowered 2021 iron-ore guidance to 320m tonnes to 325m tonnes from 325m tonnes to 340m tonnes amid delayed mine upgrades at Gudai-Darri and Robe Valley.

Average capesize spot rates should end up between $40,000 per day and $50,000 per day soon, but they won’t end up there because of the lower iron-ore guidance, said John Kartsonas, founder of asset-management advisory firm Breakwave Advisors. “This is not surprising and definitely is now priced in the futures curve,” he told TradeWinds. “There might be a psychological element to it as people read the stories in the last week, but the loss of cargo is marginal in such a tight timeframe.”

The falling rates may hurt dry bulk equities in the near term, but they may recover after owners’ third-quarter operating results come out, Noble Capital Markets analyst Poe Fratt said. “At this point, I don’t see the fundamentals changing,” he told TradeWinds. “Maybe demand will ebb as we enter the new year with less congestion and lower steel production, but the supply side appears very supportive of continued attractive dry bulk fundamentals.”

Strong coal demand should help support the capesize market by offsetting a weaker steel sector, Jefferies analyst Randy Giveans said. “As such, we expect rates to stabilize in the $40,000 to $50,000 range in the coming weeks, and the fourth-quarter average to remain above $50,000 per day,” he told TradeWinds.

Mining giant Rio Tinto has logged a hefty profit of about $24m from selling three LNG dual-fueled, 210,000-dwt bulker newbuildings that it booked at Chinese state-owned Qingdao Beihai Heavy Shipbuilding Industry. Shipping sources said the world’s largest mining company had sold the trio to US-based shipping investor JP Morgan for about $75m each, registering a profit of $8m per ship. Rio Tinto was not available for comment, while JP Morgan did not respond to emails seeking confirmation of the purchase.

The three vessels were part of a 12-ship order that the mining company booked under the code name “Project Orion” in March. It contracted Qingdao Beihai and privately-owned New Times Shipbuilding to construct six vessels each for delivery in 2023. Rio Tinto was reported to be paying $67m each for the dual-fueled bulker newbuildings, which will be fitted with MAN Energy Solutions high-pressure ME-GI engines. News of Rio Tinto’s plans to sell the trio was first reported in TradeWinds in August. Then, sale-and-purchase brokers were expecting the bulkers to achieve profits of $10m apiece as shipbuilding prices had shot up to between $77m and $80m per ship due to rising steel plate costs.

As for the other nine vessels, Rio Tinto has novated three of the Qingdao Beihai vessels to South Korea’s H-Line Shipping and the six New Times ships to Idan Ofer’s Eastern Pacific Shipping. It then chartered back the ships from the two shipping companies for terms of at least five years. Several shipping sources said Rio Tinto had not lined up a charter plan with JP Morgan on the three sold units. Rio Tinto has not disclosed why it is reducing the number of LNG-fueled bulkers it plans to control from 12 to nine. Some industry observers believe that Rio Tinto may be looking at other alternative fuels — such as ammonia and hydrogen — to reduce its carbon footprint.

The miner previously said it recognized LNG to be a cleaner-burning marine fuel option but that it was not a silver bullet for emissions reductions and could be a transitional fuel on the pathway to decarbonization. A major dry bulk charterer with more than 230 vessels on charter at any given time, Rio Tinto will introduce net-zero emission vessels to its portfolio by 2030, and support development of enabling technologies using net-zero carbon fuels, said chief commercial officer Alf Barrios. The company’s ambition is to achieve net-zero shipping by 2050.

Banking giant JP Morgan has bought five other vessels in the past four months. Its affiliate, Global Meridian Holdings, acquired the 114,000-dwt LR2 tankers A Leopard and Lion (both built 2021) from Compagnie Maritime Belge for $110m; the 207,600-dwt scrubber-fitted bulker Conrad (built 2017) for $55m and the 111,000-dwt product tankers Navig8 Pride and Navig8 Providence (both built 2018) for $48m each.

VesselsValue lists Global Meridian with a fleet of 44 ships worth $5.08bn — including tankers, bulkers, VLGCs and containerships — as well as 10 LNG carriers that are on order.

The ongoing threat from the pandemic and the fractured nature of containerized supply chains mean there is unlikely to be any easing in the market before 2023 at the earliest. “Our previous position was that supply chain disruption would be cleared by the second quarter of 2022 but that is now extended to the end of next year,” said Drewry container research manager Simon Heaney. He said the global health crisis had had a devastating effect on every single link in the global supply chain. “Even nearly two years into the pandemic, it still carries the greatest uncertainty,” he told a webinar. “We had expected to see more progress by now, but supply chain efficiency has deteriorated. That is attributable to several factors, such as China’s zero-Covid policy and some extreme weather events that threw off operations.”

A rising number of delta variant cases increased the risk level for further logistics capacity to be restricted. That would be especially true if official responses in some territories were not relaxed. Countries with the highest vaccination rates will be the least strict in terms of their responses and the impact of that on logistics capacity. But the pandemic had also accelerated “latent crises” within certain sectors, Mr Heaney said. “The problems go deeper than originally feared. Normally a localized issue could be worked around, but because this affects every aspect of the supply chain there really are no simple fixes and the problem has been magnified.” Resolving the situation would take both luck — avoiding another spike in cases, extreme weather events or another Suez incident — and investment.

“It is also going to take time to add more logistics capacity where it is needed, and that is pretty much everywhere. The issues in the supply chain were caused by no one sector, nor could one group fix it alone. It is natural to look at carrier profits, and most of the ire has been thrown their way, particularly from BCOs, but carriers are not to blame,” said Mr Heaney. “It is not their fault that because ports keep them waiting sailing schedules are in disarray. But it is also not the fault of ports and terminals that they have become parking lots for ships and boxes.”

The pandemic had stripped away ports’ ability to turn boxes efficiently, due to there being fewer truck drivers and lower amounts of warehousing space. “Each sector is going to have their own plans to manage the situation, but they are working in silos. The lack of joined up thinking is another reason we are less optimistic about a solution being found in the short term.” That meant there would be no supply chain recovery before 2023, he added.

On a more positive note, goods were still getting through, albeit more slowly. “We now expect world port handling to increase by 8.2% this year, up 7.9% from 2019,” he said. “It is a significant uptick in volumes.” Nevertheless, this was lower growth than Drewry had earlier forecast due to increasing bottlenecks and poorer economic indicators. Next year should see volumes grow by another 5.2%, but this too was threatened by rising inflationary pressures, partly because of supply chain disruption.

“More inflation could potentially strip away some of the discretionary buying power consumers have,” he said. “It is difficult to tell if the supply chain chaos has curbed growth by denying some importers and exporters access to market or if it has acted as an accelerant, as many shippers are panic buying.” Other risks included cargo demand growth petering, particularly if tighter monetary policies are introduced to curb inflation. “It is also possible a looming energy crisis could derail some of the economic recovery we have seen thus far. On the flip side this could be positive for the supply chain recovery as it would ease the capacity constraints.”

The spot capesize market briefly dipped below the $60,000 per day mark as major miners adjusted their iron ore production guidance for the year. Vale, Brazil’s largest miner, said it was now expecting output below the middle of its 315m-325m tonnes range as it focuses on margin optimization based on market conditions. While it produced 89.4m tonnes in the third quarter compared with 88.7m in the year-earlier period, its sales amounted to 67.8m, up from about 65m. It is anticipating a 6m tonnes per year increase in output from its Vargem Grande complex, while its S11D operations may be impacted by about 5m tonnes per year given the addition of new crusher equipment.

Coal production in Mozambique reached 2.5m tonnes in the last quarter, almost double that of the same period in 2020. Vale said coal sales grew strongly following improved operational performance and stronger demand from the seaborne market. However, due to the upcoming rainy season, the annual production rate of 15m tonnes may not be reached until the end of the year, although an improvement is expected to be achieved this quarter.

Rio Tinto has also adjusted its full-year iron ore shipments from Pilbara in Western Australia to 320m-325m tonnes due to operational issues. It was previously pegged at the lower end of its 325m-340m range. Shipments rose 2% to 83.4m tonnes in the third quarter, while for the nine months, it fell 2% to 237.5m tonnes.

BHP’s iron ore output meanwhile fell 4% to 63.3m tonnes in the quarter ended September versus the year-earlier period because of labour shortages due to the coronavirus travel restrictions impacting Australia.  Its guidance for output in the full financial year, however, remains at 249-259m tonnes.

The average weighted capesize time-charter inched up to $60,333 per day at the close on October 20 on the Baltic Exchange, from $59,955 in the previous session, halting a decline that lasted almost two weeks.