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There’s optimism in the capesize period market as major

charterers continue to pick up cape vessels for charters of at least one year.

The past week has seen Rio Tinto and an unnamed charterer
each take a capesize vessel on 12-month charters at daily rates of $11,450 and
$12,500 respectively. SwissMarine also reportedly booked a cape for 15 months
at a rate of $10,100 per day.

During the three months since November 10, the market has
seen 36 capesize vessels booked on period charters – exactly twice as many as
during the same period last year, according to Alibra research. Almost all of the recent fixtures have been for
12-month periods, plus seven 15-month fixtures. Rates are the same across both
the Atlantic and Pacific basins.

Charterers’ enthusiasm for longer period charters is helping
support rates, although the short-term peak may already have been seen last
week, when Oldendorff reportedly booked a cape for 12 months at $15,500 daily. Nevertheless,
current one-year rates show marked progress compared to levels a year ago when
they stood at just over $5,000 per day.

The period market has, of course, been bolstered by
volatility and growth in spot rates. The Baltic Capesize Index’s weighted
timecharter rate (for voyages on five major cape routes) was assessed on
Thursday at $5,625 per day, around double the level seen 12 months previously.

Spot rates have fallen during the past few weeks, especially
on the Australia-China route due to bad weather Down Under, which temporarily
closed the Australian ports of Port Hedland and Dampier at the end of
January. Spot rates are expected to rebound on the major route once weather
improves. The Chinese New Year holiday
also paused chartering activity. Vale ordered a lot of tonnage in the spot
market for February loading on the Brazil-China route, which appears to have
satisfied its spot chartering appetite for now, which has depressed rates on
the route for now, but an upturn is inevitable. The number of period rates
certainly suggests major charterers expect spot rates to rise further this
year. Generally speaking, commodity markets have come back with a
vengeance compared to a year ago, which we hope will continue.

The capesize market is still being haunted by the spectre of
fleet overcapacity, however. Some 86 new capesizes are scheduled to arrive this
year, which is equivalent to gross fleet growth of 5.6% in terms of number of
vessels. Perhaps worryingly, the tonnage of the average capesize newbuilding is
growing – some 50 of the new vessels that will hit the water this year are over
200,000 dwt. This means the global capesize fleet will increase 6% in tonnage
during 2017. Shipowners have done well to scrap older tonnage, which has
trimmed the global trading fleet. It certainly wouldn’t hurt to keep scrapping
during 2017.

This super-vessel trend will become more pronounced in 2018,
when 16 Valemax vessels of 400,000 dwt will hit the water, plus 15 other capes
of 200k-300k dwt, and two 180,000 dwt vessels (33 new ships in total). In spite
of this, the deliveries will only increase the global cape fleet’s tonnage by
around 3%, which is manageable. The Valemaxes will be employed on contracts
with Vale and do not usually enter into the spot trading fleet and so will have
little effect on the spot market.

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