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ICMA
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Freight Market Report
(10 August 2015)
Capesize Market Rally
Freight Market Overview
Having climbed above 800 points for the first time in 2015 towards the end of June, the benchmark Baltic Exchange Dry Index (BDI) reached 1,200 in the first week of August. Such a move was enabled by improvements across all bulker sizes, but above all by a Capesize market rally, which involved average earnings for 180 kdwt vessels, as assessed by the Baltic Exchange, jumping $11,000/day over the course of July to reach $20,000/day on 5 August, the highest level since November 2014. The gains were greatest in the Atlantic, but freight rates in the Pacific also experienced upward significant upward movement. The Gladstone to Japan spot rate is $9.90/t, according to SSY, up $2.30/t in the last month, and currently stands at its highest level since November 2014. The one-year period rate is now $15,000/day, a sharp increase from $11,500/day a month ago.
In comparison, the Panamax market has seen little movement, with the Pacific market edging lower towards the end of July into August. As a result the spot freight rate for Newcastle to Qingdao closed the first week of August at $8.50/t, down $0.50/t on the month-ago rate.
Average earnings for 52 kdwt Supramaxes reached a year-to-date high of $9,457/day on 7 August, marking a monthly gain of around $2,000/day. The largest increase experienced by any Supramax route assessed by the Baltic Exchange has been S1B (Canakkale-Far East Asia), which had reached $15,520/day on 4 August, the highest for 16 months. As with the Capesize market this has had a positive effect on period rates: the current one-year rate with Pacific delivery is more than $8,000/day - against $7,000/day at the start of July.
Dry Bulk Trade Developments
Grain-related chartering has been one of the recent key drivers of Panamax and geared bulker demand given ongoing softness in coal trade. SSY expects a record year for world seaborne grain trade, with projected seaborne trade for coarse grain, soya and wheat combined predicted to reach 437 Mt, a gain of 10 Mt on 2014. For the freight market, the positive effects of strong grain shipments from South America and the Black Sea have been accentuated this
year by the relative “shortness” of contract cover, as charterers took
advantage of the depressed spot freight market.
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record. At 10.5 Mt, July’s soya export total is 30% above the volume moved in the same month of 2014. These developments helped to absorb tonnage and pushed Panamax rates in the Atlantic to their highest levels since January 2014.
Steel prices, however, remain under pressure, despite world steel production falling 2.0% annually in the first half of 2015. According to World Steel Dynamics, the world hot rolled band export price declined to an end-July level of $371/t, which is the lowest since 2003, while, at $275/t, the corresponding Chinese price is the lowest since 2002. That said, iron ore imports into China recorded their highest month of the year in July of 86.1 Mt, as the rapid de-stock of de-stockpiled ore at China's ports during the 2q15 came to an end. In the
first seven months of 2015 the country’s iron ore imports totalled 539 Mt, very close to the corresponding period of 2014. China’s steel exports maintained a brisk pace in July. The 9.7 Mt shipped from the country was the highest for six months.
Fleet Supply Developments
Preliminary fleet data from SSY show a noticeable slowdown in the pace of dry bulk carrier demolition during July due to a combination of an improved charter market, rising ship values and a slide in ship scrap prices.
Only two vessels in the 40,000-64,999 dwt sector were scrapped during July as opposed to a monthly average of nine in the first six months of 2015. In the Panamax fleet, there was a less pronounced, but still noticeable, decline in demolition activity with three vessels in the 65,000-99,999 dwt range delivered to shipbreakers in July, as opposed to 51 units during the 1h15. Moreover, just two deletions have been recorded in the Cape fleet during July following 65 in the 1h15.
With bulker newbuilding deliveries in July recording the largest dwt capacity for six months, these developments will therefore boost the rate of fleet supply expansion after a quarter of negative dry bulk carrier fleet growth in the 2q.
Market Outlook – Freight Futures
The climb in the physical markets has had a clear impact on forward expectations in the freight futures (FFA) markets, especially in the Capesize sector. The September 2015 FFA contract for the Baltic Exchange Capesize 5 TCs (basis 180 kdwt vessels), for example, was trading around $16,300/day on 10 August compared with below $12,000/day at the beginning of July. The corresponding 4q15 contract is now priced at $17,000/day, which compares with an actual average of $15,400/day in the 4q14.
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10 August 2015
Whilst care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. SSY Consultancy & Research Ltd can accept no responsibility for any errors or omissions or any consequences arising therefrom. The views expressed are those of SSY Consultancy & Research Ltd and do not necessarily reflect the views of any other associated company.
