Freight rates in the dry cargo market rallied last month, spurred by long-haul ore shipments and grains. By Michael Hollmann
Sentiment across the dry bulk trades was lifted notably over the last four weeks as the Baltic Dry Index pushed up by 28 % to almost 4,000 points – its highest since May 2010.
While the smaller geared bulk[ds_preview]ers saw steady improvements again and panamax earnings recovered, the true highlight was the steep rise in the capesize spot market in mid-August. The time charter average (5TC) for the 180,000 dwt index vessel breached through the 40,000 $ barrier for the second time this year to reach a new year-to-date high of 47,361 $/day on 19 August.
Brokers reported strong activity and a general lack of tonnage both in the Atlantic and the Pacific which comes as a surprise given latest developments in the China’s steel industry which is arguably the dominant driving force for capesize chartering. Steel production in China dropped by 8 % month-on-month during July after sustained pressure from Beijing. The government is bent on reining in output in a bid to control commodity inflation and also carbon emissions, reports say. Demand for iron ore seems to have softened significantly as prices dropped by –25 % within two weeks.
Yet, seaborne trades appear to have evaded a slowdown, with broker reports pointing to a sudden rise in export activity from Brazil to China as from early August following a lacklustre July. This would suggest that ton mile demand for seaborne iron ore has not been affected by the recent fall in China’s steel sector.
What’s coming from China?
Can this be sustained or will seaborne iron ore volumes falter eventually if Beijing forces domestic steel producers to limit output further over the coming months? The freight futures market is slightly pessimistic, rating the time charter average of capesize bulkers a bit weaker for the rest of the year. However, a broad upward trend in cargo volumes for all other bulker types may help support the cape segment. In addition, port congestion caused by anti-Covid protocols and quarantine provisions continues to offer support. Data from French ship broker Barry Rogliano Salles (BRS) shows that average waiting times for vessels at main iron ore ports across the globe doubled to more than 5 days since June. Furthermore, fleet growth is lagging expectations with scheduled deliveries of bulker newbuildings lower than forecast in the first half of the year, BRS said.
Meanwhile the setting for the smaller bulker classes remains remarkably stable. Panamax bulkers, which were caught in a lull between the end of the South American and the start of the North American grain season, saw spot time charter earnings recover by 5 % to almost 34,000 $/day. Supramaxes and handysize bulkers notched up gains of 12 % and 8 %.
A major source of demand for all them is the grain season in the Black Sea which is absorbing large amounts of tonnage from the Mediterranean/Continent and as far afield as Southeast Asia. Since June, the Canakkale-Far East index route for supras (58,000 dwt) went up by more than 20,000 to 56,400 $/day. Availability of handy vessels in the East Med/Black Sea has tightened enough for a 36,000 dwt vessel (»Densa Falcon«) to achieve 42,000 $/day for a cement trip to the US Gulf with delivery in Port Said. No less impressive is a renewed strengthening in rates across the Pacific assisted by high activity in Southeast Asia as well as Australia and by delays due to quarantine and congestion. An Australian round-trip basis delivery Thailand was reportedly fixed at 41,000 $ on a 37,000 dwt unit, topped only by fixtures in the ever-buoyant Middle East/India region. ?
Orders & Sales
New Orders Container
After some busy weeks in terms of orders, the market has recently calmed down again somewhat. Among the latest ordering parties are TS Lines (6 x 1,100 TEU) and the German Briese group. The Leer-based company declared options for two additional 1,800 TEU vessels. Since the beginning of the year, more than 370 ships with around 3.3 mill. TEU have been ordered.
Secondhand Sales
In light of the continuing hunger for tonnage even the summer did not bring the second-hand carousel to a standstill. Successful deals include the sale of two 14-year-old 2,747 TEU vessels by Schoeller for a reported 76 mill. $. MSC was also active again, taking over 18 feeders with an average age of 25 years from John Fredriksen‘s SFL, which itself acquires two 14,000 TEU vessels from an unnamed seller.
Demolition Sales
The unprecedented profits made in container sectors saw owners flocking to the charter and S&P markets, turning their backs on the scrap market despite lucrative prices: scrapping has fallen 78 % compared to 2020. Seven of the ten container ships scrapped this year were small Feedermax vessels, all 25 years or older. Even if scrap prices continue to rise, it is unlikely that many more containers will be scrapped in the second half of the year.