According to the latest Dry Bulk Freight Forecaster from Maritime Strategies International, iron ore’s trade rise, higher steel prices and increased scrapping contributed to recent improvements.However the outlook is fragile.Today, the latest Dry Bulk Freight Forecaster from Maritime Strategies International analyses the recent uptick in the Capesize market and considers the positive trends and mitigating factors.
MSI finds the indicators relatively positive in the short-term for iron ore trade. On the supply-side, iron ore prices of $50-60/tonne are in profitable territory for the big iron ore miners and will no doubt support the ramp up of new export capacity in Australia and Brazil.
As far as the demand is concerned, an uptick in steel prices and steel production in China in March underpins more positive sentiment. , concerns of high iron ore stockpiles in China are also overplayed; at 97mt stocks are the highest since May last year but not far from the historical average and below a peak of 114mt in Q2 2014.
MSI is relatively optimistic for Capesize market over the next six months when compared with today’s levels, forecasting spot rates of $8,000/day in June and almost $10,000/day in September.
“There is no doubt that better iron ore trade has been behind the uptick in Capesize freight rates. March exports from Brazil were up 22% yoy to 35mt and Australia’s exports have gained ground year on year by a smaller margin. The cumulative impact of these gains, coupled with very strong Capesize scrapping in Q1 more than offsetting deliveries, has been enough to spark a limited positive freight response early in Q2.”said Will Fray, Senior Analyst at MSI
March was the second largest monthly reduction since 2000, with the fleet shrinking by 1.3m dwt. Deliveries of a meagre 1.1m dwt were outstripped by 2.4m dwt of scrapping.
MSI’s latest forecast for deliveries totals 6.4m dwt and 4.6m dwt in Q2 and Q3 respectively. Although bullish, those forecasts have already accounted for significant cancellation and slippage, both of which play a role in altering the near-term delivery schedule.
Fray ended by mentioning that the Capesize market will need to see a continuation of the nascent recovery in Chinese steel output and also coal imports.
“With iron ore imports now contributing a dominant proportion of consumption in China of around 80-90% by month, if steel output there falters then global ore trade will suffer. In addition, the stabilisation in hitherto declining Chinese coal imports will need to be sustained; March’s imports actually increased by over 15% yoy, the first yoy increase since June 2014.”
Source: Maritime Strategies International
