Q3 2016 - Capesize freight rates were relatively range bound for the first two months of the quarter but saw a significant improvement from the beginning of September.
Sources said the increase in freight rates was mainly due to higher levels of activity in the Atlantic and a flurry of cargoes from Brazil coupled with a record high iron ore export volume from Western Australia (iron ore exports from Port Hedland jumped 10.5% in August from the month before, reaching a record 42.8 million mt, according to Pilbara Ports Authority data), which reignited the spark in the Capesize market.
Market sources had also indicated since the Asia Pacific Capesize market has been more steadfast than the market in the Atlantic, many owners chose to keep their ships in the Pacific for most of the quarter; this in turn caused a shorter list of ballasters towards the Atlantic which caused a positional tightness for tonnage.
Market participants also ascribed the higher freight rates to higher resistance and confidence from owners with Q4 around the corner, and to a lesser extent derivatives prices and typhoons which have created disruption in some vessel schedules.
Analysis continues below...
The key Port Hedland to Qingdao iron ore route was assessed at $6.45/wmt on 22nd September, a 12 month-high since 11 August 2015. The freight rate has more than doubled since its lowest ($2.85/wmt) on 26 February 2015.
The other key iron ore route and the main driver of the overall Capesize improvement is the freight rate for Capesize vessels to move iron ore from Tubarao to Qingdao.
The route was assessed at $12.85/wmt on 22 September, 2016, the highest it’s been since 5 October 2015 (11 months). The assessment for this route was at its lowest on 29 January 2015 ($5.20/wmt), and has therefore seen an improvement of 147%.
Sources expect the improvement in iron ore exports from Brazil and Australia to keep ton-mile demand healthy, however, not all market participants believe the recovery will proceed unhindered, as some feel oversupply continues to loom over the Capesize market, thus some are also taking the opportunity to fix their vessels out for longer periods.
Next route: Panamax freight rates stay range bound in Q3 2016