capesize bulk carrier

Capesize Rates More Than Double in Last Month to Hit 2015 High

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August 7, 2015

Photo (c) Shutterstock/tcly


By Manisha Jha and Bill Lehane

(Bloomberg) — The cost of hiring a ship to haul iron ore more than doubled in the last month amid speculation that China is adding to stockpiles while the global vessel fleet shrinks.

Rates for Capesizes, the vessels that dominate the ore trade, were at $18,250 a day as of Friday, compared with $8,369 a month ago, according to data from the Baltic Exchange in London. The cost advanced to $19,499 on Aug. 5, the highest in eight months.

The world’s biggest producers including Rio Tinto Group, BHP Billiton Ltd. and Vale SA have expanded output, forcing higher-cost competitors out of the industry as they seek to maintain market share. Brazil, which accounts for about 15 percent of China’s imports, shipped the most in July since December, Trade Ministry data show.

“The recent spike is predominantly driven by more iron ore going from Brazil to China,” Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo, said by phone Aug. 5. “There’s been a restocking of Chinese iron ore inventories which absorbs a lot of vessels.”

China is the world’s biggest buyer of iron ore and its stockpiles started to increase in July, according to Arctic Securities ASA. The nation’s port inventories fell to 79.35 million tons at the end of the previous month, the lowest level since November 2013.

“Many had expected fourth-quarter strength in the Capesize market, but the strength has begun in July,” Jeffrey Landsberg, managing director at Commodore Research, said by e-mail Aug. 4.

Contracting Fleet

The cost of hiring the vessels rose 16 percent this week, a fifth straight advance, and are at the highest for the time of year since 2010, Baltic Exchange data show.

Capesize rates have also been buoyed by a contraction in the fleet of vessels, Marc Pauchet, an analyst at Braemar ACM, said by phone. Owners scrapped more vessels this year than in all of 2014, according to IHS data on Bloomberg. Demolitions are slowing as profitability improves and scrap prices decline, Haavaldsen said.

Slowing demand from China’s steelmakers could cap gains in Capesize rates in the short term, Frode Moerkedal, an analyst at Clarksons Platou, said in Aug. 5 report.

“If you’re a steel mill facing tough or negative margins there is little incentive to buy today when prices could be lower tomorrow,” Moerkedal said. “Buying smaller lots from port inventories rather than importing a ship load has therefore been more common.”

Ore with 62 percent content delivered to Qingdao sank to $44.59 a dry ton on July 8, the lowest in records dating back to May 2009, according to Metal Bulletin Ltd. Prices rebounded to $56.40 a dry ton as of Thursday.

©2015 Bloomberg News

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