Capesize momentum expected to continue in the short term - Alibra cape insight September 2020

The momentum of the dry bulk market over the past week has sparked renewed optimism in the sector, resulting in a more confident outlook towards Q4 following weeks of decline as the impact of the global pandemic put pressure on dry bulk demand.


This week the capesize time charter rates have balanced out from the recent downward trend and as such, rates have remained flat. Given the positive momentum of the capesize spot market this week which, based on Chinese iron ore demand, is expected to continue to the end of the month at least, we expect that next week’s TC rate assessment will also see an uptick. There has been some impetus to lock-in rates before the week-long golden week celebrations in China which begin next month. However, in terms of rate levels owners are holding out for an improvement in rates with capesize estimates for one-year so far this September are down 25% year-on-year to an average of $16,188/pdpr. Over the past week some interest has been reported in short-term capesize tc fixtures reported whilst the market waits to see if the rally in the spot market will continue.


Whilst the recovery in steel demand has been relatively low in many key iron ore importing nations, the boom in China’s infrastructure redevelopment has been supporting continued iron ore import demand since the country opened up post Covid-19 lockdowns. Reflecting the extent of China’s rebound from the pandemic are the estimated growth figures of 2.1% ( Source: Bloomberg) which despite being at the lowest levels since the 1970’s, estimates are still strong on a global scale where in contrast, most countries are expecting growth to contract this year.


Imports from Australia and Brazil have been supporting the post-covid infrastructure boom. The pace of iron ore imports to China has taken the market by surprise and in the past three months, Chinese iron ore imports have increased 20% y-o-y, with August imports the third highest on record, year-to-date imports being up 11% from 2019. The bulk of imports coming from Australia, despite trade disagreements.


Having returned to pre-covid operation levels, Brazil is committed to meeting iron ore production targets for this year with a target of between 310-330 million tonnes, although they will need to step up production in order to meet these targets by the end of the year. Earlier this month, Vale announced that it expects to reach an iron ore capacity of 400 million tonnes per year by increasing output across its operations.


With strong steel demand from China, seaborne coking coal demand is also making something of a resurgence after a few lacklustre month and tightening vessel demand for the larger bulk carriers. This has been attributed to aggressive spot buying from China ahead of the impending week-long celebrations.


Traditionally this time of year the dry market rates tend move up with so much uncertainty in the global economy, the markets have been somewhat unpredictable. However, given the trajectory of iron ore imports to China both from Australia and from Brazil, we expect the market to remain stable at least until the end of October.

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