Capesize spot rates recover, back to the top of the recent trading range | Report
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Since June 1, Capesize spot rates have remained rangebound, fluctuating between 18,000 and 25,000, a profitable level for most Capesize owners, but well off the highs reached last year. The market remains supported but is missing the spark that would propel spot rates to much higher levels. Our view is that rangebound trading will remain in place for a few more weeks, before the late summer seasonality kicks in and iron ore volumes from Brazil start to absorb an ever-increasing number of vessels leading to some tightening in the South Atlantic basin. In the meantime, the North Atlantic is busy with coal trading to Europe, and that is causing rates in that part of the world to stay stronger.
As we have stated in the past, the market has managed to remain relatively healthy despite the significant weakness in trade volumes to China, due to strong coal volumes, high inefficiencies due to congestion, shifting trade patterns due to the Ukrainian conflict and political disputes (see Australia-China trade issues). However, we are now approaching a period of strong seasonality. On top of that, there are significant expectations for economic stimulus out of China to support the ailing real estate sector. If such stimulus translates to higher shipping volumes for iron ore (and to a lesser degree coal), then dry bulk spot rates have the potential to reach much better levels versus what the current futures curve indicates.
