Precious Shipping’s managing director Khalid Hashim said the recovery in the dry bulk market is the real deal and that shipowners in the sector should expect a strong market in 2021 and beyond. The Bangkok-based owner said a combination of historically low fleet growth and massive global stimulus should translate into “multi-year strong ton-mile demand growth”.

Hashim’s comments come as the Thai-listed bulker owner booked a first quarter profit of $12.3m versus a loss of $3.7m a year ago. Precious reported average earnings per day, per ship during the quarter of $12,157, the highest level the company has seen in a first quarter in a decade.

Despite this, Precious said owners were still sailing their ships at reduced speeds, which assisted in tightening available supply. “2021 started with the ingredients of the perfect virtuous cycle in place with demand growth led by the Chinese stimulus of $667bn…strengthened by the $20trn monetary and fiscal stimuli enacted by the rest of the world governments to counteract the economic impact of Covid-19,” said Precious.

“Typical Chinese New Year demand slowdown in the first quarter was absent due to the spike in Covid-19 cases in different parts of China resulting in the restriction of free movement during their holiday season. This combination led to the highest first quarter numbers in the last 10 years.”

Precious said the new ship orderbook to existing fleet ratio of 5.56% at the end of the first quarter was the lowest in over 20 years.

“This means that even if there is minimal scrapping, new ship supply will be insignificant while demand is expected to expand strongly and allow owners to make money over the next few years,” the company said.

Precious added: “If the supply side gets a further dividend by the recycling of the very old ships, slow steaming by the rest of the owners who are using low-sulphur fuel oil (LSFO) and forced down time in dry docks for those owners who are still running 20+ year older ships, then the market would further benefit from this tightening of available ships on the supply side.”

Precious has a 36-strong bulker fleet spread over the handy, supramax and ultramax segments.

The dry bulk market is heating up. Period. That is period as in “period cover”. It is the buzz term as a raft of listed dry bulk owners report first-quarter earnings and guides to bookings in the current quarter. Owner after owner either talked up charter fixtures already done or in the works, or at least faced questions from equity analysts about locking away tonnage at increasingly strong rates. As dry bulk’s unusually strong first quarter stretched into a robust start to the second, charterers are beginning to believe that the upcycle will not be short-lived this time, they said.

Perhaps the most bullish message came from Safe Bulkers chief executive Polys Hajioannou, who said charters of at least three years could be seen as early as the third quarter. Meanwhile, Greek competitor Diana Shipping was concluding the latest of five medium-term fixtures over the past two months at rates averaging 70% better than the previous employment. And New York owner Genco Shipping & Trading announced three new medium-term charters on bulkers ranging from capesize to supramax in support of its new strategy to pay dividends from transparent revenue streams.

As Hajioannou told it, the multi-year deals are not here yet because forward freight agreements (FFAs) have not yet budged much off of low levels — although they will. “So we have to be patient and have the ships in the spot market to be able to reach that point, when charterers will decide that they believe in this market and start investing into the forward part of the FFA curve,” he told analysts.

Genco chief executive John Wobensmith was another who noticed that longer charters are not quite there — yet. Wobensmith said he could have fixed out the 180,400-dwt capesize Genco Liberty (built 2016) for two years, but only if he was willing to accept roughly $20,000 per day. Instead, Genco booked the bulker for one year at $31,000 per day. “We have higher expectations for 2022 than even this year, so we felt that just from a technical and financial standpoint, it was better to do the one-year rate,” he said. “We were just not getting paid for taking the second year. But I do think that as rates continue to firm, you’ll see more two-year deals being done.” Genco put away a supramax and an ultramax for five to seven months, which Wobensmith said was the common term in that market. “I haven’t really seen two-year supramax deals being done yet,” he said. “There’s been a lot of focus on five to seven months and there have been 12-month deals done, but not much liquidity in the two-year market.” He added that Genco will be looking for more period cover in capesizes as it pursues the new strategy.

Even owners who do not like a lot of charter cover say the opportunities are improving. Take Gary Vogel, chief executive of Connecticut-based Eagle Bulk Shipping. In January, he advised a financial conference that tonnage end users were remaining on the sidelines despite the start of a firming market. Four months later, the picture is better, Vogel told TradeWinds this week. “There is definitely more period activity in the market in recent weeks, as charterers and operators are becoming more willing to pay closer to spot for longer period fixtures,” he said. “The forward curve on the derivatives market for 2022 has improved materially over the past month, which mirrors that development.”

Eagle Bulk still prefers to operate its own tonnage and hedge using derivatives and physical cargo. “But we opportunistically take advantage of fixing ships out on time charter when we deem the value proposition compelling,” he said. The charters have been in a “short duration” sweet spot in the range of five to seven months.

Commodity prices for iron ore and steel have taken a huge leap and capesize rates have hit 15-year highs, but the relationship between the two phenomena remains complex. May contracts for 62% Fe content iron ore (CFR China) traded as high as $222 per tonne on Monday, 30% above a month ago, according to figures cited by Braemar ACM Shipbroking. In Singapore, Singapore Exchange (SGX) June iron ore contracts reached $225 per tonne on Monday, a $40 higher from Friday after an off-market trade on Sunday at $229 per tonne, according to Singapore-based research firm Navigate Commodities.

But it would be wrong link this jump in iron-ore pricing to supply-demand fundamentals, according to Navigate. “At present, market participants are trading iron-ore derivatives like a cryptocurrency. Not based on fundamentals, just pure momentum and sentiment,” the firm said in a note to clients on Monday. Navigate expects the bull run in iron ore prices to be undermined by higher volumes of the commodity arriving into China from Australia. It said it expects “speculatively overinflated prices to come off almost as fast as they went up once common sense prevails“. Analysts from Arrow Shipbroking Group, meanwhile, think the iron-ore price jump has been driven by demand from Chinese steel manufacturers. “Ascending steel prices have gifted steelmakers with fantastic margins encouraging additional production, whilst environmental restrictions have had little material impact on output,” the broker’s research team told TradeWinds.

Hot-rolled coil and rebar prices have reached record highs due to supply concerns, while demand for these commodities is growing worldwide. But China announced on Friday that it intends to enforce steel capacity replacement programmes more stringently from 1 June to curb pollution. This has “fuelled speculation that steelmakers may front-load iron ore purchases before the new curbs kick in,” derivatives broker Freight Investor Services said on Monday. “The swathe of production curbs imposed have so far failed to rein in supply but boosted prices and profitability at mills, allowing them to better accommodate higher iron ore costs and potentially front-load production ahead of more environmental curbs,” FIS said.

But commodity prices are just a sideshow. Inefficiencies in the capesize market are behind the current strength in freight rates, according to Russell Thompson, managing director of maritime trade data firm Tradeviews. “Rising iron ore prices have made the shipping part of trading more affordable and therefore has led to inefficiencies in operations,” Thompson told TradeWinds. These “inefficiencies” are various in nature but combined are soaking up vessel supply because more capesizes are waiting for longer periods, he said. “It’s most likely increased waiting time to load cargo but could also extend to vessel maintenance. For example, there could be a backlog of unresolved vessel issues that could not be addressed during the peak of the Covid crisis,” he added.

Congestion data compiled by bulker tracking platform Oceanbolt confirms that queues are increasing at major load ports for iron ore and coal, and to a lesser extent at discharge ports for the commodities in the Far East. The number of “congested” capesize vessels identified by the platform classed has leapt up by 33 since Sunday and stood at 407 ships on Tuesday. Over the same period, capesizes’ average waiting time has increased to 9.3 days from 8.6 days.

Much has been made of China’s seemingly endless appetite for iron ore, but customs data shows that its monthly imports during the first quarter of 2021 were up year on year by just 8%. Volumes from Australia, China’s main iron ore supplier, were 7% below the level seen during the first quarter of 2020, according to data compiled by Tradeviews. “Yet strangely the Baltic Capesize Index has been trading higher for this period,” Thompson observed. The spot rate on the Baltic Exchange’s Australia-to-China benchmark route has grown by 78% this year to date and reached $14.795 per tonne on Tuesday, down from an eight-year high of $15.35 per tonne last week. “While capesize freight rates have soared in May, I don’t expect [iron ore] volumes to be overly impressive and perhaps similar to the average of last year on this route,” Thompson said. “This is mainly due to the inefficiencies and returning steel demand in the rest of the world.”

The Baltic Dry Index — the barometer for dry bulk shipping markets — has been continuously marching forward in recent weeks, supported by strong commodity demand and inflation. Shipowners are in the driving seat, enjoying the best times for dry bulk shipping market in more than a decade as the idea of the rise being just a temporary spike fades.

What has led to this growth? As the price of iron ore breaches $226 per tonne, shippers in Western Australia are trying to maximise their sales, with healthy steel margins in China supporting demand, according to Braemar ACM. Brazilian iron ore exports have also continued to experience consistent year-on-year strength — a development not seen since 2018. Yet it is not difficult to see the scarcity factor in the commodities world.

Prices for iron ore, grains, steel, lumber, cement, glass, copper, aluminium, palladium and dozens of other smaller commodities moved by dry bulk ships are up substantially since the beginning of the year. The surge in demand for commodities, says Breakwave Advisors, is causing shortages, which eventually will normalise as production catches up to demand.

So how high can rates go? “As that production ramps up, we expect demand for dry bulk ships could be up 5% this year and continue next year,” Stifel research said in a recent report. “The dry bulk market is nowhere close to a theoretical ceiling and could easily quadruple from current levels without destroying demand,” it said.

If demand exceeds supply, the primary upward constraint of ship freight cost is the point at which it absorbs the profit of the producer or shipper. For dry bulk freight, the fact that the underlying commodities prices have increased considerably, the implied cost of freight has actually remained low despite the recent increases.

Taking thermal coal as example, Stifel notes that the landed price of coal in China is about $125 per tonne whereas the producer break-even vessels are generally around $60 a tonne. Thus, transportation cost could be as much as $65 per tonne before either price would have to rise or trade would be prohibitively expensive.

Even after the recent surge in freight rates, the cost of transportation is about $13 per tonne on a capesize vessel which earns around $40,000 a day for an average coal cargo. Freight rates would need to rise to more than seven times or around $300,000 per day before the economics are completely destroyed by freight costs, Stifel estimates.

With orderbook to fleet ratio at 5.6% — the lowest it has been since early 2002 and in the absence of a significant reversal in commodity demand, the need for dry bulk shipping is going to outstrip supply resulting in higher day rates, Stifel said.

“We expect demand to exceed supply by about 2% in 2021 and 2022 with limited supply growth in 2023.”

Iron ore prices have reached an all-time high, with China’s domestic steel product prices also soaring to figures never seen before. Capesize rates remain in lofty territory above $42,000 a day, with miners keen to shift as much product at today’s record prices as possible regardless of freight costs. May 2021 futures for 62% Fe content iron ore CFR China traded as high as $230 per tonne today, having broken through the $200 mark for the first time ever last week. The high-grade Brazilian index, denoting prices for 65% Fe fines, has also moved to the highest-ever level of $263 per tonne. Speculators in China have piled into the futures market following the holiday period last week, prompting the Dalian Commodity Exchange to introduce increased trading limits and margins for some contracts from today. “This ferrous frenzy also comes against a backdrop of an extremely strong steel market and constrained seaborne iron ore supply,” brokers Braemar ACM noted in an update yesterday.

For the capesize FFA market traders, “The sky is the limit. As iron ore prices are moving up to US$ mid-200s per ton, freight rates are spiraling and mining companies are racking up profit, the Capesize FFA traders are already in a super-cycle mode,” brokers Lorentzen & Stemoco stated in a note to clients. Furthermore, the FFA market is paying close attention to the situation for crewmembers with a travel history to India, causing slower fleet productivity and thus increasing vessel capacity utilisation, changes that could sustain and lead to higher freight rates in upcoming months. Hot rolled coil (HRC) and rebar prices have continued to set fresh records over the past few weeks on strong global demand and a shortfall in output in some countries, helping to keep mills’ profit margins in positive territory. Prices of copper, iron ore and steel rebar have surged by 86 to 113% in US dollar terms over the past 12 months leading many commentators to talk about a commodities supercycle.

According to Braemar ACM, Australian iron ore producers are on track to ship around 85m tonnes this month, representing an increase of 25% month-on-month and the highest monthly volume since June last year, though sluggish growth in Brazil has meant that on a global level, monthly iron ore volumes are still below 2018’s pace. There is still plenty of leeway for freight rate prices to increase for capes based on the surging iron ore prices. The historical average percentage of freight on delivered iron ore from Brazil to China has been around 19%. If such a level is applied to current iron ore prices, the corresponding freight rate would be in excess of $50,000. “Miners can unquestionably afford to pay up today for freight in order to secure a very lucrative profit margin on the core business, and we believe such a trend will further increase in the months ahead as mothballed and greenfield iron ore mining projects come back to life around the globe,” Breakwave Advisors suggested in a recent report.

Almost all iron ore miners have a marginal cost of production of less than $65 a tonne and major miners that account for close to 85% of global production have a marginal unit production cost of less than $30 a tonne, making current iron ore prices hugely profitable. As to the potential for this cape run to extend over many months, the jury is out among analysts. Danish Ship Finance published its biannual shipping markets review yesterday in which it suggested today’s Chinese above average steel production would be short-lived. “The Chinese economy’s steel intensity had been decreasing since 2005, until last year when production took off. We believe Chinese steel production could remain strong over the coming year. From a long-term perspective, we believe China’s steel intensity will resume a downward trajectory. This represents a major risk to the [capesize] segment, as the fleet is young and positioned for future long-term growth,” Danish Ship Finance warned, going on to highlight the risk of shortened economic lifetimes for the sector.

Over the coming two years, 95 capesize vessels will join the fleet – three times the number of vessels older than 20 years, data from Danish Ship Finance shows. “Absorption of these into the fleet will increase the pressure on owners to scrap vessels prematurely in order to balance the market. The average economic lifetime may drop from 22 years to below 18 years by 2022,” the Danish analysts predicted.

Capesize rates have reversed their recent declines as iron ore prices set fresh highs, seen as supportive for freight. Iron ore futures on the Dalian Commodity Exchange surged 10% to $226 per tonne on the back of formidable demand from China and a recovery in the rest of the world, with forecast global economic growth seen at the highest level in 30 years, according to reports.

The capesize average weighted time charter responded, gaining 2% to $42,370 per day at the May 10 on the Baltic Exchange compared with May 7, halting a two-day decline that had been spurred by fears of souring relations between China and its main iron ore supplier, Australia. A Hong Kong-based ship broker said the “astounding” iron ore prices and the rebound in Chinese steel production were supporting capesize spot rates. Chinese demand for iron ore has soared as strong steel prices see mills ramp up export production, the broker said, adding that while the dry bulk action has centred on the largest bulk carriers, the fever was slowly trickling down to panamax and kamsarmax segments too.

Panamax earnings rose to $27,126 per day on the Baltic Exchange, while the Baltic Dry Index moved up to 3,240 points.

According to the broker, the demand for capesize fixtures was being driven by China, which was “back in action and readily paying” on the front haul from Brazil. China was largely absent from the market due to May Day holidays in the past week. That means that shipowners can basically “name their price,” he said.

A capesize broker in Singapore told Lloyd’s List that many traders and brokers believed that a suspension might be put in place on iron ore cargoes from Australia given the intensifying trade spat. But the strong iron ore demand reflects China’s continued economic recovery and its dependence on iron ore, which is good news for the bulker market, he said.

Maritime Strategies International, a London-based consultancy, shared similar views, saying the supply of iron ore continues to be in deficit in relation to demand, thanks to China’s “robust” steel consumption, coupled with strong recovery in other countries. MSI’s senior dry bulk analyst Alex Stuart-Grumbar said that the trade tensions between Australia and China were also adding to sentiment as fears of a potential supply squeeze weighed in on the market.

The rising ore prices meant that charterers were increasingly motivated by maximising berth occupancy over the cost of freight, the analyst said, adding that Brazilian iron ore exports were also expected to increase significantly in the coming months, which should continue to support elevated capesize vessel earnings.

“Chinese attempts at reducing steel production over pollution concerns will increasingly come to fruition in the second half of the year, but policies have yet to significantly impact overall Chinese production, with steel producers enjoying the highest margins for several years,” he added.

Capesize rates have reversed their recent declines as iron ore prices set fresh highs, seen as supportive for freight. Iron ore futures on the Dalian Commodity Exchange surged 10% to $226 per tonne on the back of formidable demand from China and a recovery in the rest of the world, with forecast global economic growth seen at the highest level in 30 years, according to reports.

The capesize average weighted time charter responded, gaining 2% to $42,370 per day at the May 10 on the Baltic Exchange compared with May 7, halting a two-day decline that had been spurred by fears of souring relations between China and its main iron ore supplier, Australia. A Hong Kong-based ship broker said the “astounding” iron ore prices and the rebound in Chinese steel production were supporting capesize spot rates. Chinese demand for iron ore has soared as strong steel prices see mills ramp up export production, the broker said, adding that while the dry bulk action has centred on the largest bulk carriers, the fever was slowly trickling down to panamax and kamsarmax segments too.

Panamax earnings rose to $27,126 per day on the Baltic Exchange, while the Baltic Dry Index moved up to 3,240 points.

According to the broker, the demand for capesize fixtures was being driven by China, which was “back in action and readily paying” on the front haul from Brazil. China was largely absent from the market due to May Day holidays in the past week. That means that shipowners can basically “name their price,” he said.

A capesize broker in Singapore told Lloyd’s List that many traders and brokers believed that a suspension might be put in place on iron ore cargoes from Australia given the intensifying trade spat. But the strong iron ore demand reflects China’s continued economic recovery and its dependence on iron ore, which is good news for the bulker market, he said.

Maritime Strategies International, a London-based consultancy, shared similar views, saying the supply of iron ore continues to be in deficit in relation to demand, thanks to China’s “robust” steel consumption, coupled with strong recovery in other countries. MSI’s senior dry bulk analyst Alex Stuart-Grumbar said that the trade tensions between Australia and China were also adding to sentiment as fears of a potential supply squeeze weighed in on the market.

The rising ore prices meant that charterers were increasingly motivated by maximising berth occupancy over the cost of freight, the analyst said, adding that Brazilian iron ore exports were also expected to increase significantly in the coming months, which should continue to support elevated capesize vessel earnings.

“Chinese attempts at reducing steel production over pollution concerns will increasingly come to fruition in the second half of the year, but policies have yet to significantly impact overall Chinese production, with steel producers enjoying the highest margins for several years,” he added.

Two analysts hiked their outlook for Eagle Bulk Shipping as the New York-listed outfit’s fleet piles up earnings in a surging market during the second quarter. Fearnley Securities upgraded its rating on the shipowner’s shares from “hold” to “buy” on expectations that the company’s next earnings report will feature a mountain of profit.

And Clarksons Platou Securities, the investment banking division of shipbroker Clarksons, hiked its price target on Eagle Bulk’s shares to $60, a big jump from a $36 target set in March that the stock already surpassed last month.

Even though the Gary Vogel-led shipowner’s first quarter earnings came in slightly below expectations on Thursday, Fearnleys put its focus on the Connecticut company’s guidance for the second quarter. The bank’s analysts are now expecting the company to book adjusted earnings per share (EPS) of $3.66 in its next earnings report, more than three times the adjusted EPS that they said the company booked in the prior quarter. “Everything just seems to be moving in the right direction with continued upward pressure on asset values (and a strong equity currency), market drivers firing on all cylinders and an increasing flow of capital pouring into cyclical exposure,” Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart wrote.

As TradeWinds reported on Thursday, Eagle Bulk reported a profit of $9.8m for the first quarter. That amounted to $0.84 per share, below the $1.04 consensus expectation of equity analysts. But Clarksons noted that the shipowner’s fleet of supramaxes and ultramaxes is enjoying their best rates since 2010. “Coupled with several well-timed vessel acquisitions in recent months, shareholders are seeing additional value,” wrote analyst Omar Nokta. “While the shares are up 135% so far in 2021, we see plenty of upside potential.” The broker’s $60 price target represents a nearly 40% premium on Eagle’s closing stock price on Thursday, and it towers over the shares’ $10.85 price tag a year ago. Nokta said the company’s buying spree — which has seen the owner acquire seven vessels since December — has been well timed.

“Management sees further upside in vessel values given the strong market backdrop and we agree,” he wrote. “In fact we believe values remain too low relative to their current earnings power and expect they can revert to levels that were prevailing during the 2014 period.”

Diana Shipping announced on Friday yet another period deal for one of its bulkers at far higher levels than the same ship achieved under its previous employment. Bocimar International fixed the 82,100-dwt karmsarmax Myrsini (built 2010) for about six months at $27,750 per day, the US-listed company said in a bourse filing. That compares with the $11,500 per day that the Myrsini was earning so far under a charter with Ausca agreed in December 2019. “Given that the FFA five-month implied value for such a vessel is between $26,000 and $26,500 daily and this week’s BPI 82 5TC closing was very close to these levels, charterers had to pay a premium to entice owners to wrap this short-period deal up,” research analysts at Athens-based Doric Shipbrokers told TradeWinds in an e-mail.

The Myrsini deal rounds up a week “full of activity” for chartering desks specialised in period fixtures, Doric said. Until late Friday Europe time charterers were bidding eco-units with delivery Far East at between $27,000 and $28,000 per day, according to Doric’s analysts. “Colossal” stimulus measures taken across the world keep sentiment buoyant as dry bulk shipping enters its seasonally strongest period of the year in the late second and third quarters, they added.

Companies like Diana Shipping are benefiting from that trend. The company clinched period deals for five of its vessels over the past two months – two newcastlemaxes, one capesize, one post-panamax and the Myrsini. The freight rates the company achieved in those deals were more than 70% higher, on average, than in the immediately previous ones for the same vessels, according to TradeWinds calculations.

In another remarkable deal in late April, Diana said it achieved the highest rate for the 206,000-dwt Philadelphia (built 2012) since it started operating the ship. Classic Maritime agreed to fix the vessel for about a year at $28,500 per day.

The five chartering deals combined will boost Diana Shipping’s gross revenue by nearly $33m over the lifetime of the charters, which extend between six months and one year.

With higher freight rates becoming increasingly entrenched, analysts and investors start shifting their attention to whether bulker companies will manage to lock in such elevated earnings for even longer periods. Some two-year fixtures have already been concluded and several shipowners are optimistic that their number and duration will increase in the near future.

Fixtures of more than three years could be seen as soon as in the third quarter, said on Thursday Polys Hajioannou, founder and chief executive officer of Safe Bulkers – a competitor of Diana Shipping. Conditions for such long deals will ripen when the price of forward freight agreements (FFAs) for 2022 increases, Hajioannou said. At the moment, FFAs are still in backwardation, partly on concerns over India’s health crisis. Looking forward, however, “market sentiment remains robust, with fitter fundamentals supporting a quite positive scenario for the months to come,” said Doric.

After the March monthly record of 13.5 MMT, Brazil’s April soybean exports have broken all monthly records at a massive 17.4 MMT. With significant line-ups in all the Brazilian grain ports at present, May’s export figures will almost certainly top last year’s figure of 14.1 MMT especially as farmers/Shippers seek to take advantage of exporting at the current sky-high prices which at $565 per ton FOB (ex Paranagua) are double the price this time last year and are at their highest levels since September 2013.

Soybeans destined for China once again dominate the export market with 24.3 MMT out of 33.5 MMT total shipments heading there in the first 4 months of 2021. The next largest export market this year is Spain with 1.2 MMT followed by Thailand, The Netherlands and Turkey all around 0.8-0.9 MMT; shipments to Iran , Pakistan and Mexico are all up at around 0.5 MMT whilst other export markets include Bangladesh, Italy, Taiwan and Vietnam at 0.4 MMT whilst cargoes transported to Algeria and Saudi Arabia at 0.3 MMT have nearly doubled y-o-y.

The southern ports of Santos (at 10.5 MMT), Paranagua (5 MMT) and Rio Grande (3.8 MMT) and Sao Francisco Do Sul (1.5 MMT) account for around 65% of all exports so far this year though further north Itaqui (at 3.3 MMT), Villa do Conde (2.8 MMT) and the Amazon loading ports (c2.5 MMT) of Barcarena/itacoatiara/Santa/Santarem are increasing market share.

With so much of Brazil’s soyabean crop heading to China and South East Asia, Kamsarmax/Panamax vessels have come to dominate this long-haul trade. Clearly this sector benefited most from so many vessels sitting idle in port line-ups in early March due to the late arrival of the crop; though this figure is now down at 71 vessels from a peak of 161, strong cargo volumes continue to provide market momentum reflected by P6 at $28,000 in the BPI 82 Index as most of the tonnage carrying these soybeans ballasts back from the Far East.