The dry bulk market has been moving from strength to strength in 2021, after a prolonged period of stagnation. Earlier this year, I questioned if this was going to be the year of smaller bulkers as the sector experienced the most impressive gains in time charter rates — more than doubling since the start of the year. However in early May, one-year rates for capesizes were at their highest levels in seven years and the Baltic Capesize Index (BCI) hit levels not seen since 2010.

Does this imply that capesizes resumed their position as the star player, rather than experiencing a short-term spike? One-year rates for ultramaxes have seen a year-to-date increase of 61% with the April average for 12 months at $18,500 per day, according to Alibra’s time charter estimates. Meanwhile, capesize rates continue to rise albeit at a slower rate of 42%. But then earlier this month, the BCI soared thanks to strong demand on the Brazil to China and West Australia to China routes, and coupled with growing support that the dry bulk rally would continue, at least until the end of the second quarter, the time charter market followed suit and rates peaked at $28,000 per day, up 100% from the start of the year. At the time of writing, dry bulk rates dipped slightly, but with iron ore prices at an all-time high, there is growing optimism that demand will remain strong and rates will pick up once again with the end of the Australian financial year approaching. Iron ore exports traditionally peak at this time as the industry pushes out as many shipments of iron ore as possible before the end of the financial calendar.

Looking at the market fundamentals behind this meteoric rise in the dry bulk market, iron ore demand has been strong this year supported by restocking of depleted inventories due to the pandemic. Strong economic activity from China, with the US announcing a huge stimulus package with a firm iron ore consumption outlook than originally projected has fuelled sentiment, combined with economic recovery elsewhere as various countries begin to emerge from the pandemic. First-quarter iron ore production from Brazilian miner Vale was 14.2% higher year-on-year and production guidance for 2021 remains at 315m tonnes to 335m tonnes, which is good news for the capesize sector. However, Vale has a history of missing its guidance levels and with Covid-19 cases soaring in Brazil, it remains to be seen if the miner will be able to achieve production targets. With iron ore prices sky high, there is plenty of motivation to move as much of the commodity as possible. In its latest quarterly report, Vale predicted the iron ore rally will continue into the second quarter of this year but then suggested that demand from China might be impacted by production cuts due to environmental restrictions.

China’s hunger for iron ore has been the main driver in the current market rally but environmental pressures could put pressure on its consumption. Beijing had planned to reduce crude steel output in 2021 in an effort to meet green goals going forward, so at the moment the target seems unrealistic as steel production rose 15% year-on-year in the first quarter. Improved profit margins from steel mills, rocketing iron ore prices and an optimistic outlook for steel demand saw China’s crude steel output hit record levels of 97.85m tonnes in April, according to the National Bureau of Statistics of China. Opinion is mixed over whether we are indeed entering a commodity ‘super-cycle’, experiencing restocking of resources following a plunge in demand caused by pandemic-related lockdowns or if inflationary concerns are motivating investment in commodities as a means to hedge risk.

Despite the dip in rates over the last few days, it’s hard not to get excited about the prospects for dry bulk going forward, following a strong first quarter. If the rates from April and early May are anything to go by, we are undoubtedly in for an exciting, if volatile, end to the second quarter for capesizes. For now at least, capesizes are back in the driver’s seat thanks to demand for iron ore going through the roof. Going forward to the rest of 2021 to 2022, booming commodity demand should ensure a firm market for dry bulk across all sectors.

Rebecca Galanopoulos Jones is head of Research at Alibra Shipping, a London-based shipbroker.

The reason behind capesize bulker spot rates’ downward trend as of late can be summed up in one word, according to brokers and analysts: volatility. The capesize 5TC, a weighted average of spot rates across five routes, has dropped 26% since 10 May to $31,429 per day on Tuesday, hitting the lowest level in a month. “My take on it is that the larger vessels carry a smaller range of cargoes and therefore are more prone to volatility and sentiment related to those cargoes or external factors such as geopolitical events,” Rebecca Galanopoulos Jones, research analyst for London broking house Alibra Shipping. She noted that the Baltic Capesize Index is still 159% higher than two years ago at 3,790 points, before the pandemic came into play.

The supramax 10TC improved 4.9% to $25,563 per day on Tuesday since 10 May, according to the Baltic Exchange. “The smaller sizes carry a much wider range of cargoes on a variety of routes and are therefore better placed to withstand any market fluctuations.”

“There will always be more volatility in the capes than the smaller vessels as the iron ore and coal trades are much more lumpy and controlled by China, Australia and Brazil,” Jefferies analyst Randy Giveans told TradeWinds. He said he expects capesize spot rates to rise in the coming weeks and months, especially if steel prices and production remain high. “We also expect the smaller asset to remain relatively firm as demand for agriculture and the minor bulks is steady,” he said.

“The longer these rates stay anywhere near these levels, the underlying asset values will continue to rise, and stronger net asset values will lead to increasing dry bulk equity prices.”

John Kartsonas, founder and managing partner of asset management advisory Breakwave Advisors, gave another word for the dry bulk market in general. “Well, the market is confusing to say the least, as I believe there are different forces in play versus traditional levels of demand,” he told TradeWinds. “I think the smaller sizes are by far the strongest, and that is affecting both sentiment for larger sizes but also some substitution effect for charterers that have the ability to jump to a larger vessel for a small difference in freight.”

He said that demand is not strong enough right now, however, to convince charterers to load cargoes into capesizes and panamaxes instead of the smaller ships. “Having said that, I do see quite a diverse loading patterns something we are not used to, and thus market seems more active,” he said. “It has to do with high commodities prices and that should be with us for a while.”

Charter rates for boxships have hit an all-time high and are expected to remain strong for some time yet. The Hamburg and Bremen Shipbrokers’ Association’s New ConTex index rose 2.3% over the week to a historical high of 1,350 points. That follows “a paradigm shift” towards fixing for longer charter periods of 24 to 36 months, which have become the “new normal” for larger ships, according to a New ConTex note.

The surging market has also lifted the Howe Robinson Containership Index (HRCI) to 2,133 points. That takes the HRCI through the 2,000 barrier for the first time since 2005. It beats the previous all-time peak of 2,093 set almost 16 years ago in June 2005. The record-breaking rates come as no surprise, said analysts. “With the ongoing and drawn-out demand recovery from the pandemic being met with an ever-dwindling supply-side, rates were only ever going in one direction,” shipbroker Howe Robinson Partners said.

Rates have been pushed to their new highs by a series of impressive fixtures, with some of the biggest weekly rises taking place in the past month. The increase is led by the classic panamax sector, where six to 12-month charter rates for a 4,400-teu vessel stand at $50,000 per day, on a par with peak levels seen in 2005, according to assessment by shipbroker Clarksons. The speed with which the market is rising means even this level may have already been surpassed.

The 5,060-teu Heng Hui 6 (built 2004) is said to have been fixed for 60 to 80 days at $58,000 per day to France’s CMA CGM. There is also market talk of a 4,300-teu vessel taken at $70,000 for a short period. In the smaller sizes, new records are being broken as vessels are fixed for longer periods. Israeli liner operator Zim has booked the 3,534-teu Bach (built 2009), which is controlled by UK-based Borealis Maritime. The vessel is said to have been fixed for three years at $31,250 per day, said brokers. That is the first three-year fixture to break the $30,000 threshold for this size. It is more than four times the rate of around $7,500 per day that the vessel has earned for the past 12 months.

Fixtures of larger vessels, meanwhile, have practically dried up due to the dearth of vessels. The only reported deal for larger vessels this week was the 6,627-teu CMA CGM Berlioz (built 2001), which was taken on extension by France’s CMA CGM for four years at $38,000 per day. Tonnage providers are increasingly confident that the capacity crunch and high earnings are set to continue for some time yet. Global Ship Lease (GSL) executive chairman George Youroukos pointed to expectations that the smaller and midsize containerships receive a disproportionately higher boost from decarbonisation measures. Speaking at a recent conference call on 10 May, Youroukos said the container fleet would shrink as ships are forced to slow down. He said the non-eco fleet would need to slow to meet the International Maritime Organization’s rules on Energy Efficiency Existing Ship Index, or EEXI, which enters into force in 2023. That would effectively shrink the boxship fleet by six to 10% and would result in negative fleet growth.

That scenario makes it very difficult to envisage a set of circumstances on the supply side that would really derail the market, added GSL chief commercial officer Tom Lister. Larger containerships are regularly being taken for three to five years, said brokers. Larger feederships and eco-vessels are being fixed for two to three-year charters, while smaller standard feeders are going for two-year periods, according to Howe Robinson. The shipbroker has also outlined key differences between today’s market and when the containership charter market last experienced a bull market some 16 years ago. “June 2005 marked a turning point for the market, as enquiry had already slowed, periods were falling and the ominous presence of a monster orderbook was already shaking the confidence of market participants,” Howe Robinson wrote. “Today’s surging rates, expanding periods, desperate demand for ships (with little respite until at least 2023), along with high freights, bumper liner profits and a supply chain creaking at the seams, suggests anything but a change in direction for the time being.”

Legendary investor Michael Burry invested in shipping for the first time earlier this year by adding shares in three US-listed shipowners to his portfolio, according to regulatory filings. The head of California-based private investment firm Scion Capital Group was one of the first investors to call and profit from the 2008 subprime mortgage crisis, which was immortalised in the 2015 film The Big Short and the book of the same name.

Burry spent around $10.6m buying shipping stocks during the first three months of 2021, according to a filing with the US Securities and Exchange Commission (SEC). This would appear to be his first investments in the sector since Scion Asset Management began making regulatory disclosures with the SEC in 2016. Shipping stocks accounted for just over 10% of Burry’s portfolio as of 31 March.

Burry’s buying activity shows a slight preference for dry bulk stocks. He bought almost 355,000 shares in Genco Shipping & Trading on the New York Stock Exchange at an average price of $10.08 each. He also bought 530,000 shares in Nasdaq-listed bulker giant Golden Ocean Group during the period at an average price of $6.71. On the wet side, Burry bought more than 190,000 shares in New York-listed Scorpio Tankers at an average price of $18.46.

This sits alongside $10.8m in new investments in oil and gas companies, comprising energy giant Occidental Petroleum and oilfield services company Precision Drilling.

The SEC filing shows Burry has made another “big short” bet — this time against US electric vehicle and clean-energy company Tesla. By the end of the first quarter, he had puts against 800,100 shares of Tesla, which have a notional underlying value of $534m, the SEC filing shows. Burry had 8,001 put contracts as of 31 March, but their value, strike price or expiry dates were not disclosed in the filing.

The investor has previously criticised Tesla for relying too heavily on regulatory credits to generate profits. Scion Asset Management’s first-quarter disclosure shows the fund had $1.35bn in managed 13F securities during the period.

Shipments from the iron ore majors in West Australia are on track to hit 76 MMT this May. This marks an 11% improvement on April’s volume and the highest since December last year, though only about 1% higher YoY. Sky-high iron ore prices in excess of $200 per tonne have incentivized these companies to ratchet up shipments. Given that it takes a significant amount of time to drastically increase output, shipments have remained below historical records. The strong volumes have been supportive of elevated Capesize rates but this market is also being driven by a variety of inefficiencies, including the minimum ballast duration requirements for calling at Australian ports.

Steel production in China increased 4.1% MoM in April, hitting a total of 97.9 MMT, the highest monthly total on record. However, prices of finished steel have remained at elevated levels. Front month futures of Rebar and HRC are pricing as high as CNY 5,532/t and CNY 5580/t at time of writing, with HRC around 32% higher since the start of 2021. Part of this increase has been driven  by external demand. Chinese steel exports in April were their highest since November 2016, totaling a little over 7.9 MMT, with Supramaxes proving the primary beneficiary of an increase in this trade. The HRC-intensive auto industry has also picked up steam, with auto exports in China totaling 155,000 units in April, 72% higher YoY and the second highest monthly total on record. Initiated floor space of houses newly started also grew by 49% MoM in April to 403 million cumulative square meters, boosting demand for building materials such as rebar.

Aluminum production in China hit a record 3.4 MMT in April, rising just over 1% MoM and 12% YoY. Production in the first four months of the year was almost 8% higher than in 2020. Prices have risen sharply in recent months in a similar fashion to other commodities, with aluminum prices on the Shanghai futures exchange hitting 10-year highs last week at over 20,000 RMB per tonne. The rise in prices, as with steel, has incentivized smelters to ramp up output. Mid-March saw the city of Baotou in Inner Mongolia force several aluminum producers in the region, among other industrial factories, to shut down in order to meet energy consumption targets for Q1 2021. Having entered the second quarter, smelters in the region were able to restart their operations to full capacity.

A double-digit fall in capesize bulker rates did not go unnoticed — or unpunished — by US investors as shipowners in the dry-cargo trade led shipping stocks downward. Shares in US-listed bulker owners suffered an average weekly decline of 5% on Friday, as a benchmark Baltic Exchange index plunged nearly 17% on the week. That helped send the 31 stocks under coverage of investment bank Jefferies to a 1.6% decline.

The dry trade will have a chance to rebound in the current week as major owners Star Bulk Carriers and Diana Shipping report what are expected to be strong first-quarter results and guidances for second-quarter rates. Bulker names made up half the bottom 10 performers in the week past, with Eagle Bulk Shipping losing 9%. Navios Maritime Partners fell 8%, Genco Shipping & Trading dropped 7%, Diana slumped 6% and Star Bulk dipped by 5%. Shipping slightly trailed the 1.4% decline in the S&P 500, but managed a better week than the small-cap Russell 2000 index, which dropped 2.1%.

Another factor probably weighing on investors is increasing worries about inflation amid high commodity prices and supply-chain disruptions. “Even though shipping is generally a winner in an inflationary environment, it was a risk-off week across the board,” said Jefferies shipping analyst Randy Giveans. Even with the losses, the Jefferies Shipping Index is up 57.4% this year to date and 44.7% year over year.

While dry bulk shares appeared to react to the Baltic Dry Index (BDI) falling below 3,000, containership stocks dropped 4% even as the Shanghai Containerized Freight Index reached a record high of $3,343 per teu. Danaos, one of the year’s top performers to date, posted an 11% one-week decline on Friday, the worst US-listed performer. The boxship sector may get a boost this week as Israeli liner owner Zim reports its quarterly results.

“For the week ahead, we expect elevated activity in shipping as earnings season continues, the BDI is bouncing and containerships rates continue to climb,” Giveans said. Tanker shares ended Friday by eking out a 1% gain on the week as rates ticked up amid the Colonial Pipeline closure, while LNG shipping stocks slipped 1% and LPG carrier owners fell 4%.

The containership orderbook as a percentage of fleet capacity is closing in on the 20% mark, having only broached double figures last October.

Box shipping’s vessel orderbook-to-fleet ratio had steadily decreased from 30% in 2010 to 8.8% at the end of Q3 last year, the lowest figure recorded this century. Since then orders have piled in with Clarkson Research Services reporting the ratio stands at 17.6% today. With big names such as Cosco, Hapag-Lloyd and HMM all rumoured to be readying more orders in the coming months, the 20% figure is likely to be crossed. Only the LNG sector has a higher ratio – at 23%.

In terms of delivery schedules, planning departments at liners around the world will need to brace for an extraordinary 2023 when the vast majority of the ships now on order will start operating. Indeed, 2023 is shaping up as a year with more boxship deliveries in teu terms than any other in the near 70-year history of containerisation. Ahead of that deluge, however, liners continue to bask in record territory.

Friday marked another new high in the container spot freight market, with the Shanghai Containerised Freight Index comprehensive index jumping 8% week-on-week to a record 3,343 points, and spot rates on the Shanghai to North Europe route rising 16% to a fresh all-time high of $5,438 per teu.

There were further gains in containership charter rates to amongst the highest levels ever recorded; 6-12 month charter rate for a 4,400 teu old panamax rose another 4% last week to $50,000 a day, on a par with peak levels seen in 2005. Both secondhand and newbuild boxship prices continue to rise.

Brazil, the world’s second largest iron ore exporter, continued to struggle in 2020, with exports declining by -2.0% y-o-y to 334.0 MMT. China was still by far the top destination for Brazilian iron ore at 72% and exports increased by +12.9% y-o-y to 240.5 MMT in 2020. In 1Q 2021, shipments from Brazil to China surged by +20.4% y-o-y, to 50.0 MMT, an all-time record.

Brazil is on track to sell the largest volume of soybeans to the United States since 2014, according to shipping data from maritime agent Cargonave, as the nation helps Americans fill a momentary supply gap.

Increased shipments to the United States show that tight supplies and high prices are forcing soybean users like oilseed crushers and meat producers to change their suppliers to keep operations running.

A total of 208,000 tonnes of Brazil soybeans have been shipped to the United States or will set sail soon, according to shipping data and a source. That includes at least four vessels that will carry 145,000 tonnes to the United States over the coming days from the ports of Barcarena and Itacoatiara, Cargonave data showed.

Every year, Brazil, the world’s top soy exporter, sells only a few kilos of soybeans to the United States, itself a large producer and exporter. The most recent exception was in 2014, when Brazilians exported a record 1 million tonnes to the United States.

This year, though, U.S. supplies dropped to historic lows on strong domestic demand and exports to China. U.S. soybean futures on Tuesday hit their highest prices since 2012. Tight U.S. supplies may lead to more shipments of Brazil’s soy to the United States, according to market sources.

The U.S. soy crop will start to be harvested in September.

U.S.-based Bunge Ltd , Glencore’s Viterra and U.S.-based meat processor Perdue Farms are shipping soy to the United States from Brazil, according to shipping data.

Perdue chartered three vessels, including one that departed on May 9, the data showed. Privately held Perdue said it cannot publicly discuss its strategy but confirmed it chartered the three vessels.

A Cargill Inc vessel is expected to carry about 30,000 tonnes of Brazilian soy to the United States from the port of Ilhéus in the coming days, according to a source.

Glencore and Bunge declined to comment. Cargill did not have an immediate comment.

The volatile capesize market has fallen 12% this week as miners and charterers paused for breath following a rally to more than $44,000 per day. The average weighted time charter slid to $37,724 per day at the close on May 13 on the Baltic Exchange from $42,370 at the start of the week.

The rally up to almost $45,000 on May 5, the highest for the assessment that began in 2014 encompassing five key trading routes on a 180,000 dwt vessel, had been interrupted by concerns that souring relations between China and Australia after trade talks failed could impact iron ore supplies. Following a rates retreat, the market edged up, before the latest fall.

“The market has been extremely volatile, with big movements,” Fearnleys shipbroking said in a note. “On the whole, we see a change in sentiment from the super-positive to a (maybe) expected correction and breather for the miners and charterers.”

Arrow Shipbroking’s head of research Burak Cetinok said a rising number of Atlantic ballasters and slightly lower volumes from Western Australia over the past week may have contributed to the softening in rates. “I believe the heavy sell off in the forward freight agreements market over the past few days caused sentiment to turn rather skittish,” he said, adding that a bit of a pause was inevitable after such a strong run. “Fundamentally, the picture still looks strong.”

The World Steel Association recently published its short-term outlook, forecasting demand growth of 5.8% this year and 2.7% in 2022. China is expected to see growth of 3% this year and 1% in 2022, while advanced economies should see steel production rising by 8.2% and 4.2%, respectively. For the rest of the world, gains in the region of 10.2% and 5.2% over the next years could be on the cards, bar any further waves of coronavirus. It remains uncertain whether growth of almost 20% in India can be achieved given the surge in coronavirus cases there.

Simpson Spence Young head of research Derek Langston said some of the negatives creeping into the capesize market include a reduction in spot activity on some long-haul trades such as US East Coast to India, a quickening of vessel speeds, and an absence of major weather-related disruptions in China. “Another important point to note is that the retreat has been from extremely elevated levels.”

Meanwhile, Port Hedland in Western Australia maintained monthly throughput of 45.8m tonnes in April, of which 45.1m tonnes comprised iron ore exports. This was the same monthly throughput as in March 2020, Pilbara Ports Authority said in a statement.