Spot rates across the bulker spectrum didn’t move much on Monday, but they did something else that does not happen every day. They all stayed above $30,000 per day and within about $1,300 per day of each other, according to the Baltic Exchange.

The capesize 5TC, a spot-rate average weighted across five routes, inched up 0.9% from Friday to $32,755 per day on Monday. The panamax 5TC slipped 0.4% to 31,619 per day. The supramax 10TC edged up 0.4% to $31,713 per day as the handysize 7TC ticked up 0.4% to $31,442 per day. “It just shows how widespread the strength is,” Jefferies analyst Randy Giveans told TradeWinds.

“There is no specific reason for the tightness, but the smaller asset classes are certainly outperforming due to strong regional demand for grains, breakbulk cargoes being shifted from containerships to handysizes, and very little fleet growth on the smaller asset classes.” Giveans expects spot rates to remain firm in general but also foresees more capesize strength, with iron-ore exports, especially out of Brazil, likely to pick up and continued coal restocking.

Noble Capital Markets analyst Poe Fratt said smaller-asset rates may have caught up to those for capesizes due to China’s efforts to curb inflation and slower iron-ore exports out of Brazil, particularly from mining giant Vale. “The other sectors move broader and more diverse cargoes, i.e., less reliant on China,” he told TradeWinds. “I think that the second half of 2021 should lead to higher iron ore exports out of Brazil if China doesn’t clamp down too tightly and Vale can hit their full-year 2021 targets. ” Congestion also seems to be “a lingering issue” that has been supporting rates, he said.

Jiangsu Huaxi Ship Management has fixed the 93,379-dwt Spring Glory (built 2011) to trader Wooyang at $31,250 per day from 31 July to 5 August for a shipment from Taiwan to South Korea.

The Baltic Exchange noted that the paper market began the week “a bit softly” with front-month rates down about $1,000 for capesizes, panamaxes and supramaxes. “On a positive note, for iron ore demand, Chinese steel prices are making some noticeable gains,” it said in its daily report on the dry bulk market.

Rebar has reached $830 per tonne, up from $815 per tonne last week, while hot-rolled prices have risen $10 to $900 per tonne. “Should these prices continue to gain, appetite for iron ore, especially [on long-haul shipments] from Brazil, is expected to keep capesize rates elevated.”

The ongoing Covid-19 upheaval has created many winners in the shipping markets — but few bigger than handysize owners. Usually praised for producing steady, if relatively low earnings compared with bigger, high-risk high-reward bulkers, handysizes have been providing freight earnings unseen in years. “The market keeps surprising us all,” said an analyst at Athens-based bulker specialist Doric Shipbrokers. “The [benchmark] 7TC average keeps breaking consecutive records and new heights,” Doric said in the week to 16 July, when six out of the seven representative fixtures its brokers reported exceeded the $30,000-per-day mark.

On 23 July, the Baltic Exchange Handysize Index jumped to 1,736 points — its highest reading since September 2008. Players owning bigger ships feel content with the high rates their own vessels are earning. However, at the same time, they cannot help salivating over the money earned by the smaller ships, which are usually less expensive to acquire and operate. According to market observers, handysizes have been particularly apt to benefit from the uneven nature of the post-Covid global economic recovery, in which bottlenecks and opportunities suddenly appear and then vanish again in different parts of the world and in different kinds of trades.

“They can just go anywhere,” one shipping executive in Athens said. Even vintage handysizes previously believed to be obsolete have been in high demand. It is not surprising, therefore, to see handysizes featuring largely on the shopping lists of Greek owners. Vafias family company Brave Maritime has been among the most notable buyers relatively early in the cycle, acquiring five such ships so far this year, as TradeWinds has reported.

Handysizes have even attracted the interest of big winners in other shipping sectors, such as containership specialist Costamare, which has recently re-entered the dry bulk arena after a hiatus of about three decades. TradeWinds understands that at least a quarter of the 28 ships that the US-listed company has publicly acknowledged as having bought on the secondhand market as of 1 July — without identifying them — are handysizes. Among them are vessels built in South Korea, such as the 33,700-dwt Orient Adventure (renamed Adventure, built 2011), and China, such as the 33,500-dwt Orient Alliance (renamed Alliance, built 2010) and 37,200-dwt Interlink Acuity (renamed Acuity, built 2011).

Other Greek buyers are preparing to take delivery of handysizes they acquired earlier in the year. One example is Alma Shipmanagement & Trading. Two vessels bought by clients of the low-profile handysize specialist have entered the company’s fleet in an increasingly hot market. Earlier this month, Alma emerged as the new manager of the 28,300-dwt Loveland Island (renamed Lady Dimine, built 2010) and 28,200-dwt Crystal Island (renamed Lady Miraf, built 2011). Brokers reported both ships as sold in May by Japan’s Shikishima Kisen for about $18m in total. Combined, they are worth a cool $24m as of 23 July, according to VesselsValue.

The same Greeks who buy also keep an eye out for the odd asset play — especially when it comes to their oldest vessels. In early June, Alma reportedly sold the 28,500-dwt Despina Angel (built 2007) for $8.25m — a vessel it bought four years ago for about $7m. Managers at Alma did not respond to a request for comment. At about the same time that Alma bought its handysize pair, diversified Greek peer Evalend Shipping bought yet another ship sold by Shikishima Kisen. The Japanese company’s 28,200-dwt Cherry Island (built 2014), which brokers reported sold for about $11m to unidentified buyers at the time, emerged a few weeks later with Kriton Lendoudis-led Evalend under a new name, Bronco.

Severe drought in North America has cut expected US spring wheat output to the lowest in three decades and crops in the Canadian Prairies are likely to be reduced as well.

Large portions of Canada’s annual wheat and canola output are reserved for exports, with China being one of the main customers.

The USDA has pegged the US spring crop output down by 37% from the previous three-year average, the lowest since 1988.

US durum wheat harvest is expected at 46% less than last year and the smallest in 60 years.

Though the USDA has yet to update Canadian wheat output projections, a situation akin to 1988 would place the figure at 19.8 MMT, down by 11.7 MMT.

The loss in wheat and canola production would be significant to the global market as Canada accounts for two-thirds of global canola exports and is the third largest wheat exporter in the world, making up 13% of annual trade.

The first nine months of 2021 saw China become a significant customer of Canadian wheat, but as the situation worsens trade flows are likely to change.

Two big UK investment funds have sold down stakes’ worth about $15.6m in Tufton Oceanic Assets. The UK shipowner has seen its stock price rise 33% over the last year.

In a London stock exchange filing, London’s Pictet Asset Management said it had cut its stake from 9.23% to 4.64% on 19 July, with 12.5m shares left. A day later, UK-based Newton Investment Management reduced its holding from 5.22% to 4.85%, retaining 13.1m shares. This is a combined disposal of about 5% of the shipowner.

The share price was $0.82 in September 2020, but is now $1.16, up 33% over a year, and 2% over the last week. Tufton Oceanic’s market cap is around £227m ($312m).

Market Screener previously listed Pictet as the third and Newton as the fourth largest shareholders in Tufton Oceanic. East Riding of Yorkshire Council is listed as the biggest investor on 10.3%, with West Yorkshire Pension Fund second on 7.9%.

On 22 July, Tufton Oceanic, which has 21 ships, said the shipping industry is in “the early innings of a multi-year upcycle”. The company pledged to keep recycling capital across the tanker, bulker, and containership segments.

In a quarterly update, Tufton Oceanic said its net asset value (NAV) was $312.65m as of 30 June, while the NAV return was 11.7% as containership and bulker values rose strongly.

Encouraged by the strong performance and increased portfolio yield, the board has raised its annual dividend target from $0.075 to $0.08 per share, starting in the third quarter.

Spot rates for capesize bulkers may reach $40,000 per day amid strong demand for iron ore and coal, but much depends on China’s plans to curb carbon emissions, according to a sector expert. Capesizes are still trading at a discount to smaller bulkers for the moment, however, as activity in the market remains quiet. Only two new capesize fixtures for iron ore came to light on Thursday, one in the Atlantic and one in the Pacific. Another vessel was fixed for coal as part of an ongoing tender by Korea Electric Power Corporation (Kepco).

In the Pacific, Rio Tinto fixed an unnamed capesize for an iron-ore trip from Western Australia to China at $12.25 per tonne, loading from 5 August. This is an improvement on fixtures reported on Monday, when the mining giant was said to have booked two capesizes for the same trip at $11.25 and $11.45 per tonne respectively, loading around the same time.

The capesize 5TC, a spot-rate average weighted across five key routes, improved by 3.3% on Thursday and was assessed at $30,098 per day, according to Baltic Exchange data. The last time the assessment surpassed the $30,000 level was on 13 July when it hit $30,272 per day. “I do believe we are bottoming out here and soon capes will once again start to rise towards the $40,000-per-day mark,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “That will be on the back of healthy Brazilian iron ore volumes and surprisingly strong coal volumes that is taking increasingly more capesize ships from the overall pool. The result could be a strong market in the next few months, and I think freight futures are sensing this, thus the premium prices above spot.”

The paper market has shown incremental gains over the past three trading days, with prices settling higher across the forward curve for all contracts until 2028. Kartsonas said freight rates may keep rising if Atlantic-basin coal volumes remain high in August, but they may fall if China lowers iron-ore consumption and steel output to hit carbon-reduction goals. “China’s policy towards steel production and the associated emissions remains the major risk for the ongoing dry-bulk bull market,” he said.

Spot rates for sub-capesize bulkers also picked up on Thursday, but whether they will continue to improve is anyone’s guess, according to Rebecca Galanopoulos-Jones, research analyst for London broking house Alibra Shipping. “At this stage, it’s hard to tell if it is just the usual volatility or something more significant, and we wouldn’t usually expect a rally at this time of year as the market begins to unwind for the summer,” she told TradeWinds.

She said spot rates for the smaller ships received support from both basins this week amid strong commodity demand. “We expect rates to remain firm for the rest of the year,” she said. The supramax 10TC weighted-average spot rate has moved up by 2.4% since Monday and was assessed on Thursday at $31,264 per day. The handysize 7TC average spot rate has edged up 2.7% over the same time frame and was assessed at $31,072 per day on Thursday.

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.

The European Energy Exchange (EEX) has reported record dry freight volumes. Cleared and exchange-traded dry-bulk freight business jumped 42% in the first half of the year. Some 598,300 lots were traded in the period from January to June, up from 422,224 in the same period last year. It is the highest six-monthly volumes figure since the Deutsch Borse subsidiary moved into the freight market five years ago. Freight futures rose 64% to 525,400 lots. However, the volume of freight options dropped by 29% to 72,900 lots.

Richard Heath, EEX head of global commodities, said volumes had risen due to strong “counter-seasonal behavior” and “exceptional rates” in different dry-bulk sectors. Ongoing volatility meant volumes are likely to remain strong in the third quarter, which is traditionally the busiest time of the year for the sector, he said. The clearing exchange reaps most of its business from the panamax and capesize sector.

However, the return of players from the handysize dry segment to the futures market had contributed to the improvement. EEX holds 62% of the open interest in the handysize sector after launching a new contract in April. This has enabled traders to clear forward freight agreements (FFA) for the 38,000-dwt basket of routes. The contract has proven important for a specific group of customers and shown that there was “a hedging need in this market“, Heath said. “It’s small, its growing. We still expect it to become 5% to 10% of total market volumes over time,” he said.

EEX entered the freight sector in 2016 and has grown rapidly over the past two years. The Leipzig-based company claims to have the majority share of open interest in the combined dry-freight market worldwide, where it competes with the rival Singapore Exchange (SGX). “I’m incredibly proud of what we have achieved in dry freight and particularly so over the past six months,” said EEX chief executive Peter Reitz.

“In addition to significantly increasing our volumes, through our recently launched Zero Carbon Freight Index [ZCFI], we are actively helping the shipping industry manage its transition to a decarbonized and more sustainable future,” he said. The ZCFI was launched on 12 July and is designed to show how the cost of carbon emissions can affect freight prices. The index shows a daily “synthetic” freight forward agreement rate inclusive of 100% carbon reduction for capesize and panamax contracts.

Fidelity Investments’ nearly 12% stake in New York’s Genco Shipping & Trading has been well earned by the owner, but the size of the holding also points out the limitations of public shipowners when it comes to market capitalization and overall scale. That is the assessment of veteran investment banker David Herman, who once specialized in shipping for Credit Suisse and now heads the finance arm of Connecticut tanker brokerage Charles R Weber.

“Fidelity taking a 12% position in Genco is significant and bodes well for Genco and others in the industry,” Herman told TradeWinds. “An investment from Fidelity is like the Good Housekeeping Seal of Approval — it validates a company or an industry. That said, given the relative market caps in shipping, the dollar amounts are not huge. On an absolute basis, the $90m investment is less than the cost of two new capesize vessels and would be tiny in the context of better known, more-liquid stocks like Apple or Tesla.”

Herman stressed that he was positive on the development for Genco and likes the company but sought to place the position in the context of the broader investing marketplace. “Genco has done a great job both operationally and financially and has created an attractive and investable platform in the dry-bulk space,” Herman said. “Year to date, the stock has more than doubled and Fidelity and the other shareholders have benefited.”

Still, a market capitalization of about $660m, while improved, makes it typical of what shipowners can offer large institutions that are used to dealing with bigger players. “Shipping is a small market cap sector,” Herman said. “Outside a couple of large liner companies, most shipping companies have a market capitalization below $2bn and most are below $1bn.

“Large institutions generally have restrictions on the percent of a company they will own, and 10% or more is considered a large position.”

As TradeWinds reported in September 2020, Herman was hired by the new leadership at Charles R Weber to head the brokerage house’s first foray into ship finance.

US institutional investor Fidelity’s purchase of a 12% stake in New York-listed Genco Shipping & Trading is part of a wider build-up in dry bulk by the mammoth firm over the past six months, according to finance sources and available data. Fidelity’s accumulation of a $90m position in Genco stands beside a holding of at least $64m in dry-trade peer Star Bulk Carriers of Greece, along with smaller holdings in the Golden Ocean Group, Safe Bulkers, Eagle Bulk Shipping, Pangaea Logistics and Diana Shipping, records show.

The broader holdings appear to suggest Fidelity — a classic buy-and-hold or “long only” investor — has bought into the notion that dry bulk’s current bull run has some longevity. However, it is also worth noting that Fidelity’s largest holding comes in three owners who pay shareholder dividends — and in the case of Star Bulk and Genco, they are payments that could become robust over the next quarters if the rally endures.

“We have seen a good amount of interest from long-only funds over the past few months,” veteran Clarksons Platou Securities analyst Omar Nokta told TradeWinds. “Higher earnings and free cash flow generation are driving the interest, with a backdrop of strong demand and supply dynamics. In Genco’s case, it seems to be the potential of significant dividends going forward but the main factor in our view is simply the flexibility the company has with its strong balance sheet and free cash flow.”

Fidelity’s filing indicates the Boston-based company has accumulated nearly 5m shares, or an 11.9% stake in Genco. It began building the stake in the first quarter, when it held 3.7m shares or 8.8%. Fidelity has not updated its holdings of Genco’s dry-trade peers since the end of the first quarter. But at that time, it held about 3.5m shares of Star Bulk. While that is only 3.4% of the company, it was worth about $64m based on the current share price.

Genco announced a shift towards a low-debt, high-dividend model at the end of the first quarter. The policy is to take effect in the fourth quarter with payments in the first quarter of 2022. Star Bulk instituted a high-payout dividend model in 2019 that fell into hibernation during the lean times of Covid-19 in 2020 but was revived in May amid a strong market. Investment bank Jefferies expects Star Bulk to pay out $1.27 per share in the third quarter, $1.97 in the fourth and $4.30 for all of 2022.

So, is it the long-term rates outlook or the dividend play that attracts a Fidelity? In the end, they are joined at the hip. While Genco said it is structuring its balance sheet to pay a dividend in any rates environment, the payments will certainly be more robust when hire rates cooperate. “Taking 12% of any company takes courage,” one shipowning executive said. “It is not something that Fidelity or any other mutual fund investor would usually do. They must like the prospects for the industry and, specifically, the prospects of the company a lot.” A second company executive said he believes the size of Fidelity’s position was influenced by the exit of Genco’s top three private-equity holders — making large blocks of shares freely available — and the ability to buy below the owner’s net asset value. “I think Fidelity’s outsized position was a bit opportunistic because there were some big sellers in the first quarter, and at a discount,” he said. “Genco was for sale because those guys were looking to get out. If an investor is bullish on the sector and thinks we’re in a prolonged cycle, it means all these companies will generate cash and will have to do something with the cash, whether that’s pay it out or reinvest it. If you reinvest, you create value as well. So, I think the interest is more that Fidelity is overall bullish on the sector.” Fidelity’s third-largest reported position in a dry owner is a stake of just over $28m, or 1.3%, in John Fredriksen-backed Golden Ocean. The owner is paying a quarterly dividend of $0.25 per share.

Prices for sought after panamax boxships have more than doubled in the space of just three months, one of the sharpest vessel appreciations recorded in the history of shipping.

As a result of the increased S&P market and soaring freight and charter rates, 15-year-old 4,250 teu tonnage has leapt from $20m at the end of March to be worth around $48m today, data from VesselsValue shows.

The number of secondhand containership sales is up 780% for year to date compared to the same period last year, according to VesselsValue data.

“With the ever-firming rates across the container sector, we have seen a surge in values,” Olivia Watkins, head cargo analyst at VesselsValue, wrote in a new report yesterday, adding: “Increased US imports, port congestions and a shortage of capacity is pushing freight rates to record levels on key routes from China to the US and Europe. A secondary outbreak of Covid-19 in Southern China has prompted even more delays and congestion across ports which has tightened supply.”

On the global port congestion issue, Danish box shipping consultants eeSea have provided Splash with an updated map today highlighting the worst hotspots around the world.