After several days of remarkable growth in freight rates the segment of capesize bulker ow a downturn is expected, shipping consultancy Maritime Strategies International (MSI) says.
»Resurgent commodity prices have supported vessel earnings during fourth quarter but a correction [ds_preview]is likely in the near term«, MSI explains in their lates »Dry Bulk Freight Forecaster. The analysts expect a firm festive season for the dry bulk market, swiftly followed by a New Year comedown.
In the report, MSI says that after a steady fall in average daily TCE spot earnings in October, November saw an inflection point for Capesizes, with rates soaring to over $16,000/day, the highest since mid-2015. Some of this strength has translated to the Panamax market, although Supramax and Handysize earnings have been broadly unaffected.
The main indicator for dry bulk shipping BDI (Baltic Dry Index) nonetheless continued its upswing, and closed on friday with 1,257 points, now reaching the highest value since three years.
»A basket of key commodity prices – notably iron ore, coking and steam coal – have surged dramatically in recent weeks, with falls in domestic supplies in China a key driver. This trend is forecast to continue through Q4 but weaker iron ore and coal trade will impact Capesize and Panamax demand in the near term«, according to MSI Senior Analyst Will Fray.
According to MSI, the capesize market would be demonstrating what might be termed ‘frothy‘ characteristics with patches of strong chartering despite weak underlying fundamentals. »On this basis it is difficult to build a reliable view on how long this freight rate uptick will last, but in any case we expect spot rates to fall back below operating costs in the New Year. This will be mainly as a result of weaker iron ore trade in Q1, but by Q2 we expect to see stronger Chinese coal production limiting coal import requirements«, Fray adds.
The MSI outlook for the Panamax market will be impacted by weaker coal demand to India, an effect magnified by the significant proportion of imports carried in Panamax vessels. Some improvement is expected towards the end of this year, but spot earnings are forecast to drop back again in early 2017 to below $6,000/day, with barely any improvement into Q2.
In addition, the New Year would also likely to see rates fall in the Handysize sector, partly due to expectations of strong Ultramax deliveries in Q1. However MSI‘s forecast of $6,000/day in January and $7,300/day in April is broadly positive, particularly when compared with the MSI outlook for Capesize and Panamax markets.
