What is happening to the dry bulk market?

The Capesize market continued its assertive rally in past weeks reaching new highs in dramatic fashion. The Capesize 5TC recently touched the $53,240 level and never looked like taking a backward step as it earned in one week a staggering $8,069 up settling at $61,309

The logo of Australia's Fortescue Metals Group can be seen on a bulk carrier

di Massimo Granieri

Baltic index hits 12-year peak on firmer vessels rates*
The Baltic Exchange main dry bulk sea freight index rose for a fourth straight session by mid September to a 12-year high, buoyed by higher rates across vessel segments. The overall index, which factors in rates for capesize, panamax, supramax and handysize vessels, rose 150 points, or 3.4%, to 4,560, its highest since November 2009. Strong iron ore and coal trades are driving dry bulk rates higher. Congestion and other inefficiencies related to COVID-19 and geopolitical tensions are benefiting the dry bulk market by removing effective fleet supply . The capesize index increased by 415 points, or 6.1%, to 7,200, hitting its highest in 12 years. Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, rose by $3,446 to $59,715. Increasing iron ore production and exports from Brazil and Australia, as well as coal demand from India and China to replenish stocks ahead of a colder winter, has aided the rise in the capesize segment. Iron ore futures in Asia rebounded recently, although doubts lingered whether gains could be sustained given the collapse in China demand and improving supply prospects. The panamax index rose 31 points, or 0.8%, to 3,961, its highest in more than ten weeks. Average daily earnings for panamaxes, which ferry 60,000-70,000 tonne coal or grain cargoes, increased by $274 to $35,647. Among smaller vessels, the supramax index rose for a sixth straight session, adding 11 points to 3,338, its highest in over two weeks.
Source: Reuters

Dry Bulk Market: Capesize Segment Keeps on Rallying
The Capesize market continued its assertive rally in past weeks reaching new highs in dramatic fashion. The Capesize 5TC recently touched the $53,240 level and never looked like taking a backward step as it earned in one week a staggering $8,069 up settling at $61,309. The main driving force for the market came from the Pacific, as West Australian charterers were caught early on in the week dealing with a slim selection of choices and troubled vessel schedules resulting from the previous week weather in eastern China. The West Australia to China C5 leapt up $3,759 in one week to $20,145 before regressing at the end of the week to $19,082. Meanwhile, the Transpacific C10 closed the week out at a hefty $67,000, off the previous day high of $70,742. Heading west into the Atlantic heard that owners are on the hunt for fronthaul cargoes to the detriment of Transatlantic business. Transatlantic C8 are now prices at $69,215, while the Fronthaul C9 commands a $81,775 price tag allowing owners to cash in on their premium position for the price of repositioning to the Pacific.

Not quite as sensational as the Cape market and despite varying holidays throughout the week the Panamax market returned to positive territory. Stable fundamentals pitched against tonnage tightness made for the perfect storm with strong gains seen in the Atlantic with most major loading origins seeing solid demand. East coast South America saw good support for second half October arrivals, with talk of an 81,000-dwt accomplishing $36,500 for a trip via east coast South America with delivery in Singapore. Asia, despite holidays, witnessed steady gains. NoPac grain demand returned as the main driver in the north, with a $35,500 agreed on an 81,000-dwt delivery Japan for a NoPac round trip the high on the week. Stronger levels too from both Indonesia and Australia to India on the coal trips, with $38,250 the high rate on an 82,000-dwt delivery Malaysia for a trip via Indonesia to India. Period activity saw an 81,000-dwt achieve $34,000 for four to six months.

With widespread holidays in Asia the week started on a relatively slow note. However, sentiment remained strong in most areas as more enquiry was seen. Period activity included a 63,000-dwt open Southeast Asia fixing five to seven months trading in the low $40,000s. Better demand was seen from the Mediterranean for Atlantic business, with a 56,000-dwt fixing a trip from Turkey to West Africa at $52,000. From the US Gulf an Ultramax was heard to have been fixed for a trip to the far east in the low $50,000s. Further south from east coast South America, limited activity was reported with some seeing tonnage supply growing. From Asia, a 63,000-dwt open Kosichang was fixed for an Indonesian coal run to China in the low $40,000s and Ultramax size also open Southeast Asia were seeing in the low $40,000s for Australian round voyages. From the Indian Ocean, a 63,000-dwt open Kandla was fixed for a trip to the Continent at $40,000.

A week of positive gains on the BHSI, despite holidays in the Asia region causing activity to be limited, resulting in a new yearly high of 1925 points. East coast South America continues its revival, with a 37,000-dwt fixing a trip from Vila Do Conde to Norway with an intended cargo of alumina at $37,000, plus a 28,000-dwt fixing from Santos to Morocco with an intended cargo of sugar at $34,000.A 35,000-dwt was also fixed from Morocco to Bangladesh at $45,250. In the Mediterranean a 37,000-dwt was fixed for a trip from Turkey to the US Gulf with an intended cargo of steels at $41,000. In Asia a 32,000-dwt was fixed from Vietnam to China with an intended cargo of clinker at around $39,000. Period has been active with a 32,000-dwt open in Brazil being fixed for four to five months with worldwide redelivery at $35,000.
(Source: The Baltic Briefing)

Tension between Australia and China worsening
The tension in the relationship between Australia and China, already evident since the start of the pandemic, hasnt abated until now. On the contrary, it seems to be worsening, which in turn, is causing an upset to regular dry bulk trade patters. The unfolding last week of a trilateral defence pact between the United States, Australia, the United Kingdom (AUKUS) envisages a wide range of collaboration, but at its core is an agreement to start consultations to help Australia acquire a fleet of nuclear-propelled submarines. Believe AUKUS is an interesting development in the context of the already intensified geopolitical tensions between Australia and China, which have already led to a shift in trading patterns, particularly as far as dry bulk trade is concerned. According Mr. Christopher Whitty, Director of Towage and Marine Port Services, in particular, Chinas ban on Australian coal since Q42020 has triggered inefficiencies in coal trading, with wide price arbitrages developing between China and the rest of the world for both metallurgical coal used by the steel industry and thermal coal used in power generation. The supply tightness has been more severe on metallurgical coal, the price of which has surged to record high levels, with China scrambling for supplies simulateneously with the rest of the world, steel production of which continues to grow. Australia is the worlds largest met coal exporter (approx. 59.0% of global seaborne met coal exports) and 2nd thermal coal exporter (approx. 22.0% of global seaborne thermal coal exports). Chinas coking coal imports from Australia have come down to zero YTD 2021 vs a more than 50% share in imports during the previous two years. Imports from Mongolia so far have failed to meet increased demand amid COVID related supply disruptions and China had to increase its met coal imports share from Russia and the West (particularly the US and Canada), the last traditionally being primariy origins of imports for Europe. On the other hand, Australia coking coal is absorbed by steel mills outside China, as global steel production excl. the latter is up 16.0+% y-o-y (YTD Jan-Jul) and Australia coking coal has turned out cheaper than US coking coal despite the overall price surge.. Whitty added that in the meantime, China policy pledge for emissions cuts seems to be further supporting ton-miles for dry bulk, despite the country crude steel production declining y-o-y over the past two months and iron ore price collapsing below $100/ton recently from $230/ton in mid-July.
Source: Hellenic Shipping News Worldwide

* Topics reported to Summer 2021 period