Dry Cargo

Volatile capes trading below opex again

The volatile cape market has taken a serious nosedive this week, brokers at Fearnleys report, with ships in the Atlantic once again trading at below operating expenses.

The large amount of available spot tonnage in both the Atlantic and Pacific basins have slashed rates to their lowest levels so far this year.

“The north Atlantic continues to struggle with very limited cargoes and an Atlantic round on TCT is now paying below operating costs,” Fearnleys reported in its latest weekly report. In the Pacific capes are trading for just $8,000 a day, with weather issues to the fore.

However, the Norwegian broker did point out that the period market has kept up “fairly well”, leading Fearnleys to believe the market is set to rebound in the next few weeks from the present grim levels.

Commenting on the current capesize travails William Fray, a director at Maritime Strategies International (MSI), told Splash: “There is no single factor undermining capesize rates, but a combination of factors.”

The main source of weakness, Fray contended, has been in Brazil, where seasonal weather disruption and annual maintenance has hindered iron ore shipments. Vale is thought to have lost up to 8m tonnes of exports in March. There has also been bad weather in Australia and cyclones on the west coast, which might have also delayed iron ore exports.

Nevertheless, like Fearnleys, Fray said MSI expects these to be temporary factors.

“It’s worth noting that Chinese iron ore production was down 33% year-on-year for January and February. Weaker Chinese domestic iron ore output this year will be positive for trade this year even if steel production softens,” Fray contended, adding: “Overall, the fundamentals are still positive for capesize spot rates this year and we expect a recovery in the spot market in Q2. Our fundamentals forecast does not quite justify current one-year time charter rates, however, which look excessive at close to $20,000 a day.”

Likewise, Drewry Maritime Financial Research is confident cape rates will build back up this quarter.

In a report issued today, Drewry stated: “We believe these interruptions are intermittent and the rates are expected to show improvement from 2Q18 as the demand for iron ore from Asian markets continues to rise, the cloud of confusion over restrictions in China clears and the overall charter market for dry bulk cargo recovers. The low number of deliveries, as well as high demolitions, should restrict the growth in fleet supply below 3% in the next 2-2.5 years.”

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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