The cost of carbon in Europe has helped demand for capesize bulkers carrying Atlantic coal to double during the first six months of 2021, according to research. Arrow Shipbroking Group’s research team said that the boost in capesize demand comes on the back of a mismatch in pricing between the East and West. “The coal market has swung from a heavy surplus in 2020 into a tight deficit in 2021 as demand has bounced back more aggressively than anticipated,” the team said in a note on Tuesday. “This has caused inter-basin arbitrages to open up, which is consequently driving Atlantic coal into the Pacific.”

Demand for capesizes carrying Atlantic coal rose by 92% during the first six months of 2021, according to Arrow. Meanwhile, demand for capesizes carrying iron ore from the Atlantic basin fell by 3% over the same period. Demand for coal in Europe would be high if it simply came down to energy prices, but another dynamic is at play, Arrow said. “Rallying carbon prices have decimated the profitability of coal in Europe,” the firm explained in its note. “So as far as our data goes back, year-ahead coal margins today are the highest ever without carbon. However, when you factor in carbon, margins today are the lowest ever.” As of Tuesday, year-ahead profit margins in Germany were €42 ($49.50) per megawatt hour (MWh) for burning coal without carbon credits (so-called “dark spreads”), according to data cited by Arrow. The year-ahead margin is -€15 per MWh for burning the fuel in Germany with carbon credits (known as “clean-dark spreads”).

Importers in the Far East are picking up coal cargoes that would otherwise have made their way to Europe. “A decade-strong panamax market means capes are increasingly called into the coal trade to fill the gaps,” Arrow said in the report. “In June, capes took a higher proportion of Atlantic coal cargoes than panamaxes, an unusual occurrence.”

Coal volumes from the Atlantic bound for the East doubled between December 2020 and June this year, according to Arrow. The long-haul trips are helping to drive demand for capes and have absorbed most of the marginal tonnage, the firm said.

In June 4.7m tonnes of Atlantic coal was bound for the Pacific basin and India, compared to 3.1m tonnes that stayed in the Atlantic, according to Arrow. Capes carried around 44% of all Atlantic coal cargoes during June, while panamaxes took 33%, supramaxes accounted for 14% and handysizes had a 9% market share.

Arrow said it expects demand for coal to remain firm because, as commodity prices rise, it is the cheapest form of fuel in a world that is running short on energy and that is predominantly without carbon trading. Import demand for coal will remain especially strong in Asia and will ramp up further in the coming months, Arrow said, pointing to the fact that Newcastle coal futures have already surpassed $140 per tonne. “However, with wet weather and tighter domestic market obligations, Indonesian exports may underperform which could encourage Asian buyers to seek even more cargoes further afield,” Arrow added.

This tonne-mile-intensive trade will continue to benefit the capes segment as Atlantic coal volumes rise, the firm said.

Newbuilding orders have enjoyed a remarkable rebound so far this year following a market depression in 2020. The rocketing freight rates, especially in the box shipping market, fleet renewal driven by stricter environmental requirements, and the increasing speculative interest have all boosted the activity. Statistics compiled by China’s shipbuilding association (Cansi) show new orders won by South Korean shipyards jumped 716% year on year in the first half of 2021 to 11m cgt, while their Japanese rivals recorded a 14.3% growth to 1.9m cgt. The figures are based on Clarksons data, company disclosures and other open-source information. While Cansi has yet to release the results in China, the first five months have already seen its new orders up 53.7% to 11.8m cgt.

State-owned China State Shipbuilding Corp, which is the world’s largest shipbuilding group by assets, said it hit its 2021 annual order target in just six months, with 18.4m dwt contracted in January to June, exceeding the amount a year ago by almost three-fold. Equity analysts appear optimistic about the outlook of the shipbuilding companies they cover.

CGS-CIMB Securities research analyst Lim Siew Khee noted the hefty orderbook of Singapore-listed Yangzijiang Shipbuilding, the leading privately run Chinese player in the sector. The company boasted a backlog worth $7.7bn as of the end of June — higher than the 2008 peak of $6.9bn — of which $5.5bn were orders clinched this year. Most of those fresh tonnage are boxships. “With the Shanghai Containerized Freight Index remaining high at a record level… we think shipping clients could be pressed for slots and will pay to secure the space,” said Ms Lim.

Daewoo Shipbuilding & Marine Engineering, an important South Korean builder, echoed the view. It told investors that the liner shipping market remained strong because of continued port congestions and customers’ desire for stable supply. In addition, “containerships require more fossil fuel than other types of ships. To overcome this situation, owners will actively consider transitioning to eco-friendly ships”, DSME said. Meanwhile, the order spree in the dry bulker sector appears on its way as the Baltic Dry Index elevates.

Data from China Newbuilding Price Index, which tracks ship prices at domestic yards based on inputs from 21 broking houses, revealed at least part of the uptrend. According to its statistics, dry bulker orders placed at Chinese yards in the first half of the year jumped 140% to 12.4m dwt. Allied Shipbroking noted that the record levels of freight earnings have pushed up owners’ demand for further fleet expansion. “Given the positive market outlook, buying confidence and the current fundamentals, we expect more [orders] to be announced in the coming weeks, with a notable focus to be given in the smaller size units,” it said.

Nevertheless, yards are being pestered by one big problem: a disappearing margin pared by rising shipbuilding costs, in particular the steel prices. A senior yard executive said many of the contracts announced in the second quarter of this year were options of the firm orders signed in the first quarter or even earlier. Hence, these were loss-making deals with almost the same ship price yet much costlier ship plates, he added. “So, we have to increase the prices for new deals, even though that may cut down on some of our business, such as speculative orders.”

The Clarksons Newbuilding Price Index climbed from 126 points at the end of 2020 to 138 points as of mid-June 2021, its highest level since 2014. The guidance price for very large crude carriers and capesize dry bulkers and 15,500 teu boxships were up by 14%, 26% and 24%, respectively, over the period. Further upward pressure is expected as iron ore prices continue to surge amid strong demand for the commodity, despite China’s attempts to curb the mark-ups. As a result, ordering enthusiasm could be tempered in the second half of the year. Some brokers, however, argue that owners who have or are making a fortune out of the hot market will not stop ordering as they are less sensitive to the high newbuilding prices. Others pointed out that the uncertainties over new emission-cutting measures and the extra investment in energy-saving devices and fuel technologies on board may help owners keep a cool head.

Drewry’s latest Container Forecaster report has carried out a massive upgrade of liner profits for the full year. Drewry is now forecasting the container shipping industry will post a record $80bn profit in 2021, up from earlier forecasts of $35bn. If freight rates surpass expectations in the remainder of the year, Drewry said an annual profit line in the region of $100bn is not out of the question, more than three times the all-time liner record. “2021 will be the first year in the history of container shipping when carrier profits approach $100 billion and average freight rates jump by 50%, against a background of huge operational disruptions to the port and ship systems,” the UK consultancy noted.

Drewry predicts that box volumes will continue to rise through the Q3 peak season and to end the year with annual growth of approximately 10%, cementing what has been a banner, record year for the industry. “We are now getting accustomed to seeing triple-digit annual growth rates for spot rates on most lanes. That these instances are no longer shocking is further proof, if needed, that the market truly is crazy right now,” the UK analysts noted.

As far as 2022 goes, Drewry suggests there will still be growth, but probably only about half as strong as consumer spending is expected to move back towards services as Covid-related restrictions are lifted. For 2022, Drewry expects EBIT to drop by a bit more than one-third due to softening freight rates and rising costs that may stay higher for longer with many carriers locking into expensive longer-term charter fixtures. Looking further ahead, Drewry maintains the view that high levels of newbuild contracting for 2023 pose a risk of overcapacity returning to the market during that year, but future supply requirements are heavily clouded by new environment regulations due to become law at the start of 2023, that may or may not see significant chunks of the containership fleet slowdown to comply. “[Carrriers] will have made so much money between 2020-22 that they will be set up for years to come. They could potentially make as much profit in this window as they could have hoped in a decade, or more,” Drewry concluded.

Looking at the $100bn profit figure posited by Drewry, Lars Jensen, CEO of container advisory Vespucci Maritime, suggested that container shipping was set to make up for 20 years of value destruction in the space of a single year. In 2018, McKinsey published a report looking at the previous 20 years of profitability in the container shipping industry. The report from three years ago estimated that the liner industry had destroyed more than $100bn in shareholder value over the previous 20 years. Shippers hoping this year was a temporary blip and a return to the low rates of the previous decade are in for a disappointment, Jensen suggested via LinkedIn. The “new normal” for container shipping will see rates higher than before the pandemic, Jensen predicted. This new normal would feature less overcapacity thanks to the huge consolidation seen in the sector in recent years. “The decades where carriers – on average – were selling freight below full cost levels are over,” Jensen maintained.

Alan Murphy, founder of box consultancy Sea-Intelligence, writing in his company’s regular Sunday Spotlight newsletter, discussed today’s unprecedented liner environment. “Economists like to refer to unpredictable and wide-impacting events as ‘Black Swans’, adopted from the epistemological challenge to inductivist philosophy that knowledge must come from more than just pure empiricism: If your world view is built on the notion ‘all swans we have ever seen are white, and, therefore, all swans must be white’, then your world is going to break when you spot a black swan, common to Australia,” Murphy wrote, adding: “Any model built to predict the future of container shipping has been designed in a world populated entirely with white swans, and suddenly, the world has run out of white swans, and there is now a 2,000 dollar surcharge to even secure a black swan.”

Patrik Berglund, the CEO of freight rate benchmarking platform Xeneta, commented today: “Carriers unquestionably have the upper hand and are in a strong position to exploit the budgets of big volume shippers.” Berglund said shippers should brace themselves for the carriers’ and forwarders’ Q2 financials.

“It will be a joyful moment for the sellers, but painful for the rest of the market,” Berglund warned.

China’s iron ore imports are likely to fall by around 79 MMT/year from 2020 over the next five years, in line with the aims of the country’s five-year plan for the steel industry, Jinshan Xie, an analyst with Shanghai-based research firm Horizon Insights, said during a webinar organized by Horizon and the Singapore Exchange SGX June 30.

Imports will fall as China develops its own iron ore mines, which, together with local scrap production and pig iron, could eventually meet more than 45% of the country’s total iron demand in 2025, compared to 37% in 2020, Xie said. However, the country’s iron ore import levels will remain above 1 BMT/year, she said.

China imported a record 1.17 BMT of iron ore in 2020, up 9.5% on the year, according to data from the country’s General Administration of Customs, as construction and infrastructure demand boomed on COVID-19 recovery stimulus, leading steel production to grow. The nation’s crude steel output reached 1.064 BMT last year, up from 2019’s 995.40 BMT, according to the World Steel Association.

Fifty iron ore mine projects in China are reported to be currently under construction, planned or expanding, with a total capacity of around 340 MMT/year, which could increase the country’s iron ore concentrates production by 105 MMT/year. The country is seen as having the potential to supply 22% of its domestic iron ore demand in 2025, up from 19% in 2020.

The surge in the iron ore price over the past year is seen to have made Chinese iron ore reserves — which are typically low-grade — more profitable to mine. S&P Global Platts assessed the 62% Fe Iron Ore Index at $218.40/dry mt CFR North China on June 30, up $4.30/dmt on the day. The price reached an all-time high of $233/mt on May 12. Iron ore prices are expected to remain at high levels this year, according to Horizon Insights, with “some relief in the fourth quarter as supplies from Australia and Brazil ramp up.” This could lead to China’s port inventories reaching 135 million mt by the end of the year, Xie said.

Steel production accounts for 15% of China’s total carbon emissions which has made the industry a target for controls under the country’s current five-year development plan, Xie said. The Ministry of Industry and Information Technology has prohibited further expansion of steel refining capacity in the 2021-25 period, and for this reason production is expected to peak within the next two years, after polluting steel capacity replacement plans are completed, the analyst said. The slow-down in steelmaking growth should allow domestic steel prices and profitability to remain at a “healthy” level, she said.

In a move to meet the emissions goals, the steel sector’s scrap consumption is also expected to rise, Xie said. The goal is to raise production via electric arc furnaces to 15%-30% of total crude steel output during the five-year period, compared to a 10% level at present, with 30% of this production coming from scrap. BOF mills will also need to increase their scrap usage, to meet the targets, she said. Scrap consumption has recently increased by 30 MMT year on year, mainly fueled by domestic and “more elastic” supplies, Xie said. Total scrap demand is expected to grow from 100 million mt/year in 2020 to 355 million mt/year by 2025, she said.

Chinese dry bulk imports arriving on Panamaxes hit a record high of 42.8 MMT in June, rising by 27% YoY.

Imports of Agri bulk, grains and iron ore have seen increases of 38%, 19% and 18% YoY, respectively.

As a result, Panamax congestion in China has continued to soar, reaching a record high of 15.8 MDWT last week. China’s sustained demand for grains and recent uptick in coal imports has seen ports struggle to deal with the increased arrivals.

Record Panamax cargoes arriving in China has left the Atlantic market extremely tight, with most Panamax routes hitting decade-highs as a result.

The P1A and P2A 82k dwt routes, both delivery Skaw-Gibraltar, hit record highs on Friday, with rates reported today at $44,775 per day and $55,614 per day an increase of 218% and 166% YoY, according to the Baltic Exchange.

Most of the participants in the dry bulk market are expecting the strong freight rate sentiment to continue through the year, bar any unexpected black swan events. Bullish sentiment is being driven predominantly by muted fleet growth — the lowest in decades — combined with an uptick in demand, which is largely expected to track the bounce back in global GDP growth following the pandemic-led lockdowns of 2020. The rosy prospects, which may even continue beyond 2022, have attracted several new players into the dry bulk arena. Shipping Strategy, a UK-based consultancy, said high earnings are expected until the arrival of the next wave of newbuildings in 2023. The market will be buoyed even when stimuli starts to taper off. “It is benign on the supply side — there is little scope to order vessels for delivery before mid-next year,” said the company’s founder Mark Williams. “From a demand perspective, world GDP growth of 5.5%, based on manufacturing and infrastructure-led stimulus, should give a boost to freight rates,” along with a weak dollar, he added. “Our base case is that the strength will continue in 2022 and even into 2023. It’s the best bang since the big one in 2003-2008.”

In the first five months of this year, about 16 mdwt out of the 30 mdwt of new scheduled capacity was delivered, according to the largest shipping association BIMCO. Its chief shipping analyst Peter Sand expects full-year fleet growth of 2.4%, down from last year’s 4%, while demolitions are pegged at 9 mdwt, the third-lowest level in 11 years. Demand growth is expected to be “well ahead” of fleet expansion this year. “Dry bulk surprised on the upside in the first half and the market established itself firmly,” Mr Sand said. He added that everyone is making money from their ships in the region of $24,000 per day. “But it’s not over the moon; it’s not a super-cycle,” he advised.

Maritime Strategies International is forecasting spot rates for all segments to be stronger in the third quarter of this year than the fourth. The London-based consultancy estimates capesizes to average $35,000 per day, before falling to about $29,000 per day, while Panamaxes are forecast to drop from about $23,000 per day to just above $19,000 per day. Supramaxes are seen averaging $22,600 per day in the third quarter, falling to about $18,000 per day, while handysizes should face a similar trend, declining from $20,000 per day to just above $17,000 per day, MSI estimates show. “By themselves, the fundamentals of trade volumes and fleet capacity fail to explain the strength of the market,” MSI’s senior analyst Alex Stuart-Grumbar said. “Other factors lending support (and driving volatility) include changing trade patterns, Covid-19-related inefficiencies, and high commodity prices.” While the market is expecting a return of higher iron ore volumes, especially from Brazil, MSI questions whether the country’s largest miner Vale can meet its full-year guidance of 315m-335m tonnes, given a new dam issue, which will likely remove 15m tonnes in the coming months. MSI also expects a potential softening in demand from China as profit margins for downstream firms get squeezed, although the timing is difficult to predict. According to MSI, robust steel exports from China will continue to support the dry bulk market, helping handysizes. Supras should, meanwhile, benefit from higher coal volumes from Indonesia to China due to peak summer demand and ahead of import restrictions later in the year, it noted. In May, 98 bulkers loaded, up from 53 in April.

Oslo-based Cleaves Securities expects to see the second half broadly in line with the unusually very strong first six months. The investment bank’s head of research Joakim Hannisdahl is predicting declines in earnings for panamax-sized vessels and below through the rest of the year — albeit still at firm levels. However, he is more bullish on the larger sizes, anticipating very large ore carriers to earn almost $50,000 per day in the fourth quarter from $43,000 per day in the prior three months, while capesizes were pegged at $38,000 per day, up from the $33,000 per day mark.

China’s steel production reached 99.5m tonnes in May, a 6.6% gain from the same month a year earlier, according to the latest statistics from the World Steel Association. In the first five months, it produced 473.1m tonnes, a 14% increase. The rebound in the rest of the world is also interesting to note, up 33% to 75m tonnes, just shy of a record in March. Arctic Securities said the fact that crude steel production was running high both inside China and outside of it was “a highly positive backdrop for dry bulk shipping”.

Minor bulk trades are also expected to remain strong as infrastructure spend continues, while grains may hit fresh highs in the latter part of the year, based on estimates from the US Department of Agriculture. According to Braemar ACM, some asset classes will receive more support than others from the grains outlook. Total grain liftings on bulkers so far this year have surpassed 267.1m tonnes, an 11% increase versus the same period in 2020, with shipments hitting a record 58.7m tonnes in April, its leading dry bulk analyst Nick Ristic said. Much of the uplift came from US shipments, while higher volumes from Canada, Australia, Brazil, and Argentina were also noted. “Soyabean trade, which will weaken over the second half of the year, is overwhelmingly serviced by Panamaxes, while smaller vessels will not be as exposed to weaker growth,” he said. “We believe the geared fleet is primed to take advantage of a boost in trade over the next few months, and we expect these vessels to receive the most support from the positive stories in the corn and wheat markets,” Mr Ristic added. The much-awaited recovery in the dry bulk market has taken hold. With low fleet supply growth and steady demand for seaborne volumes, the market should continue an upward trend for some time yet.

A year ago, a handful of senior executives from a major container line, a shipowner and a panel of research analysts were meeting to discuss market prospects and planning. One of the bolder analysts offered a view that in 12 months’ time, the market would not just be strong; it would be booming. He was practically laughed off the Zoom call. He was right, they were wrong, but the shipowners made the money and are still laughing. It’s a tough gig making predictions, especially about the future, and nobody was seriously anticipating today’s markets during the abyss of the global pandemic. Yet here we are. China has delivered for dry bulk and the US consumer has delivered for the box trades.

More than three billion vaccine doses have been administered worldwide as we write this mid-year outlook and the analyst telling tanker owners that they will be reading about improved rates in the next edition of the outlook will no longer be laughed off the call. Without wishing to jinx it, this half-year health check on the state of the market finds shipping in a good place — albeit with all the usual fears of tipping points that could yet snatch defeat from the jaws of victory. On the dry side of the markets, the party may be less exuberant, but it is still the biggest blast the sector has seen for several years — and it is not slowing down any time soon. With commodity prices regaining pandemic-related losses, and some reaching highs last seen a decade ago, the inevitable speculation of a new commodity super-cycle has been keeping financial journalists busy.

They are wrong, of course. The recent price spikes were due to reduced supply plus a quick recovery in industrial production and robust global monetary and fiscal stimulus measures have increased demand. However, the super-cycle is over-egging the situation. That said, this commodity market has some way to go yet. We have seen Beijing trying to take the heat out of the market earlier in the year, with attempts to cool prices of steel, iron ore and other commodities. Yet even if China starts to take its foot off the domestic accelerator, demand from the rest of the world is not going to peak until later this year, or more likely not until 2022.

And if previous seasonal patterns are any guide, the bull run has some way to go yet for dry demand. Meanwhile, the bulk carrier fleet is unlikely to grow very much this or next year. The orderbook-to-fleet ratio has followed a downward trajectory since the end of 2018. While owners in other segments are investing in vessels propelled by transition fuels, dry bulk owners seem to be more hesitant. This is one factor keeping the orderbook low for the moment, but the situation will change as the push for greener shipping increases, contracting activity. Herein lies the somewhat cheerless final thought to an otherwise positive half-year outlook (if you side-step the current tanker rates and focus on the vaccine-led recovery).

If the past 12 months has taught us anything, it is that demand is predictably unpredictable. The fact that the current upturn has hit after a period of low orders in most sectors is more luck than judgment on the part of an industry with a pathological tendency toward self-harm. The question of how the industry invests this current windfall is going to determine the direction of the next editions of Lloyd’s List outlooks.

Most of the participants in the dry bulk market are expecting the strong freight rate sentiment to continue through the year, bar any unexpected black swan events. Bullish sentiment is being driven predominantly by muted fleet growth — the lowest in decades — combined with an uptick in demand, which is largely expected to track the bounce back in global GDP growth following the pandemic-led lockdowns of 2020. The rosy prospects, which may even continue beyond 2022, have attracted several new players into the dry bulk arena.

Shipping Strategy, a UK-based consultancy, said high earnings are expected until the arrival of the next wave of newbuildings in 2023. The market will be buoyed even when stimuli starts to taper off. “It is benign on the supply side — there is little scope to order vessels for delivery before mid-next year,” said the company’s founder Mark Williams. “From a demand perspective, world GDP growth of 5.5%, based on manufacturing and infrastructure-led stimulus, should give a boost to freight rates,” along with a weak dollar, he added. “Our base case is that the strength will continue in 2022 and even into 2023. It’s the best bang since the big one in 2003-2008.”

In the first five months of this year, about 16m dwt out of the 30m dwt of new scheduled capacity was delivered, according to the largest shipping association BIMCO. Its chief shipping analyst Peter Sand expects full-year fleet growth of 2.4%, down from last year’s 4%, while demolitions are pegged at 9m dwt, the third-lowest level in 11 years. Demand growth is expected to be “well ahead” of fleet expansion this year.  “Dry bulk surprised on the upside in the first half and the market established itself firmly,” Mr Sand said. He added that everyone is making money from their ships in the region of $24,000 per day. “But it’s not over the moon; it’s not a super-cycle,” he advised.

Maritime Strategies International is forecasting spot rates for all segments to be stronger in the third quarter of this year than the fourth. The London-based consultancy estimates capesizes to average $35,000 per day, before falling to about $29,000 per day, while Panamaxes are forecast to drop from about $23,000 per day to just above $19,000 per day. Supras are seen averaging $22,600 per day in the third quarter, falling to about $18,000 per day, while handysizes should face a similar trend, declining from $20,000 per day to just above $17,000 per day, MSI estimates show. Oslo-based Cleaves Securities expects to see the second half broadly in line with the unusually very strong first six months. The investment bank’s head of research Joakim Hannisdahl is predicting declines in earnings for panamax-sized vessels and below through the rest of the year — albeit still at firm levels. However, he is more bullish on the larger sizes, anticipating very large ore carriers to earn almost $50,000 per day in the fourth quarter from $43,000 per day in the prior three months, while capesizes were pegged at $38,000 per day, up from the $33,000 per day mark.

“By themselves, the fundamentals of trade volumes and fleet capacity fail to explain the strength of the market,” MSI’s senior analyst Alex Stuart-Grumbar said. “Other factors lending support (and driving volatility) include changing trade patterns, Covid-19-related inefficiencies, and high commodity prices”. While the market is expecting a return of higher iron ore volumes, especially from Brazil, MSI questions whether the country’s largest miner Vale can meet its full-year guidance of 315m-335m tonnes, given a new dam issue, which will likely remove 15m tonnes in the coming months. MSI also expects a potential softening in demand from China as profit margins for downstream firms get squeezed, although the timing is difficult to predict. According to MSI, robust steel exports from China will continue to support the dry bulk market, helping handysizes. Supras should, meanwhile, benefit from higher coal volumes from Indonesia to China due to peak summer demand and ahead of import restrictions later in the year, it noted. In May, 98 bulkers loaded, up from 53 in April. Minor bulk trades are also expected to remain strong as infrastructure spend continues, while grains may hit fresh highs in the latter part of the year, based on estimates from the US Department of Agriculture.

China’s steel production reached 99.5m tonnes in May, a 6.6% gain from the same month a year earlier, according to the latest statistics from the World Steel Association. In the first five months, it produced 473.1m tonnes, a 14% increase. The rebound in the rest of the world is also interesting to note, up 33% to 75m tonnes, just shy of a record in March. Arctic Securities said the fact that crude steel production was running high both inside China and outside of it was “a highly positive backdrop for dry bulk shipping”.

According to Braemar ACM, some asset classes will receive more support than others from the grains outlook. Total grain liftings on bulkers so far this year have surpassed 267.1m tonnes, an 11% increase versus the same period in 2020, with shipments hitting a record 58.7m tonnes in April, its leading dry bulk analyst Nick Ristic said. Much of the uplift came from US shipments, while higher volumes from Canada, Australia, Brazil, and Argentina were also noted.  “Soyabean trade, which will weaken over the SH of the year, is overwhelmingly serviced by Panamaxes, while smaller vessels will not be as exposed to weaker growth,” he said. “We believe the geared fleet is primed to take advantage of a boost in trade over the next few months, and we expect these vessels to receive the most support from the positive stories in the corn and wheat markets,” Mr Ristic added. The much-awaited recovery in the dry bulk market has taken hold. With low fleet supply growth and steady demand for seaborne volumes, the market should continue an upward trend for some time yet. 

Many in the capesize market have been waiting for stronger fixtures to shore up sentiment, but those people were still waiting on Thursday, causing a big fall in physical rates and a selloff in the derivatives market. Although more deals came to the fore on Thursday, reported rates were markedly lower than those seen earlier in the week. “It’s only temporary but getting sold off at the minute. We have too many ballasters arriving in Brazil for July,” a capesize broker told TradeWinds on Thursday.

Panelists assessed rates on all the Baltic Exchange’s benchmarks lower on Thursday. The capesize 5TC, the weighted average of spot rates across five key routes, declined for the second consecutive trading day and was assessed $2,004 lower than Wednesday at $30,600 per day. Rates on the iron-ore voyage from Brazil to China were estimated on Thursday at $26.63 per tonne, 70 cents lower than the previous day. Brazilian miner Vale reportedly booked Minerva Marine’s 177,800-dwt Monemvasia (built 2009) on the route at $25.50 per tonne, loading in mid-July.

Meanwhile, 62 cents were wiped off the assessment for the rival route for ore from Western Australia to China, which Baltic panelists put at $11.432 per tonne. Mining giant Rio Tinto reportedly fixed Capital Ship Management’s 179,200-dwt Cape Agamemnon (built 2010) at $11.40 per tonne on Thursday for an ore trip to China, loading in Australia in mid-July. This is 50 cents lower than a deal reported on Thursday, when the miner fixed an unidentified capesize for the same trip for the same dates. Two weeks ago, Rio Tinto agreed a price of $12.40 per tonne when it fixed a capesize — G Marine’s 178,900-dwt Attikos (built 2012) — to carry Australian ore to China, loading from 4 July.

But the real drama of the day was seen in the freight derivatives market for capesizes on Thursday. A selloff in the FFA market began on Monday and capesize contracts have settled lower each day since — but nothing this week has compared to the selloff seen on Thursday. Worst affected were July contracts, which settled 11% lower than the previous close at $31,875 per day, having fallen by a huge $4,082. August contracts hardly fared much better, falling by $3,618 — equivalent to 9% — to $36,257 per day. FFAs for the third quarter fell by $3,282 to $35,020 per day.

Norwegian shipbroker Fearnleys said that deals in the physical market this week have not been strong enough to support sentiment. “Towards end of last week there were some stronger fixtures for August dates in line with FFA [freight forward agreement] values. This as well as firmer rates for smaller segments suggested spot rates would improve but rather the opposite happened,” the broker’s research team said in a market report on Thursday. “West Australia rounds is presently around $12 per tonne and Brazil around the $26 level.” But Fearnleys thinks that the dip in the market will only be temporary. “Even though a correction of some degree now looks likely, we remain optimistic on market prospects for the coming months,” the broker said its report.

Capesize spot rates have been volatile lately, but there appears to be no problem with the underlying fundamentals. Tonnage is being taken out of the market by inefficiencies and distortions caused by the pandemic and trade disputes, which has helped to keep rates firm. Australia, for instance, requires ships to be at sea for a minimum of 14 days before they can call at its ports, which means ships either have to slow down or spend an extra few days at anchor before loading in the country. This has had a beneficial effect on spot rates in the Pacific, according to research by Braemar ACM Shipbroking. “For ships opting to change crews in the Philippines, a popular option, the 14-day clock is reset at this point, and more time must be spent idling as a result,” Nick Ristic, Braemar’s dry cargo analyst, said in a report last week. “The upshot of this effect is that over the first half of this year, capesize demand per tonne of cargo on a C5 voyage from Australia to East Asia has been 15% higher than the pre-pandemic average. As a result, capesize fleet utilization has received a leg-up, despite cargo volumes seeing only limited gains.”

Norden, a Danish owner and operator of dry bulk carriers and tankers, has raised its profits guidance for the fourth time this year. The company said it raised its adjusted result expectation to $140m-$200m, given continued increases in dry bulk freight rates combined with a strong performance in its dry operator unit. Its previous forecast, which had been revised in early June, was $110m-$160m.

The new guidance was based on significant gains in forward freight rates for the last two quarters of the year, while the broader range reflects the fact that earnings expectations are based on a currently large position held in a dry cargo market with unusually high volatility, and which is mainly based on unrealized future earnings, it said.

Supramaxes and Panamaxes, the size categories in which Norden operates, gained about $10,000 per day since the end of May. Rates in the last week alone have increased $2,750 per day, the company said.

Chief executive Jan Rindbo said: “With significant rate increases in recent weeks and especially in the last few days, expected future earnings continue to increase based on Dry Operator’s long position (more tonnage than cargoes). The operational performance in our Dry Operator business unit enables us to continuously leverage the market volatility as well as the daily utilization of vessels.”

From an earnings perspective, Norden’s other business units — Asset Management and Tanker Operator — are developing in line with previously announced expectations, the company said, adding that portfolio values are also rising in line with the stronger dry bulk market.