The Baltic Dry Index has hit 1–month high on firmer demand for bulk carriers offering some relatively optimistic signs.
Capesizes supported by firm iron ore demand
The capesize segment is seen supported by the robust steel production in China, the world’s largest steelmaker. This, in turn, has increased demand for the raw ingredient of iron ore and therefore has been assisting the capesize carriers, both on the physical and paper side. Indeed, capesize earnings have been steadily recovering, although they remain in a low territory, hovering in the low US$4,000’s/d region. Hence, if something is to be highlighted is the market trend that appears upward, rather than the actual spot values which have not yet reached healthy levels, especially so for those units that are burdened with finance. Cape futures have been also underlining the market’s optimism for the coming quarters.
Iron ore stockpiles in China are at the lowest level in nearly 4 years, another positive omen for an increased demand for imports going forward, along with announcements of an infrastructure-intensive stimulus package. On the supply side, Brazilian miner Vale has maintained its previously announced target for its iron ore output for full year 2020. Brazilian exports are of significant importance not only because Brazil is China’s second largest iron ore supplier, but also because the usual Brazil/China route constitutes one of the longest routes in the seaborne dry bulk trade and hence significantly affecting the tonne-mile dynamics.
Political tensions between China and Australia have surfaced over the past couple weeks, but we don’t expect them to have a severe impact on Australian iron ore exports into China, as the latter does not have a solid alternative to source the steelmaking ingredient from. To put things into perspective, Australia’s iron ore accounts for about 62% of China’s ore imports.
