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Capes Remain Impressive Despite The Start of Chinese Golden Week

Updated: Dec 11, 2020

Weekly Report for the week ended 02/10/2020



Next week’s predictions:

  • Capes: Despite the start of Golden Week in China it has not curbed the explosive enthusiasm of the Cape dry bulk market. The spot Cape index had another impressive rise of more than 30% as iron ore exports out of the 2 major hubs in Brazil and Australia increased quite considerably compared to the previous 2 weeks. Our expectation for next week is positive as demand is now switching from October to November stems, but we remain cautious as volatility will be ever-present.

  • Panamax/Kamsarmax: Freight rates are still quite hesitant in this sector as tonnage supply is quite abundant and despite the increase in chartering activity, this has not resulted yet in a substantial change of mood. We should see the spot market improve in the weeks to come as the ratio between Cape and Panamax spot pricing has now reached 3 to 1, which implies that Panamax will potentially improve.

Dry Bulk

  • Is China about to relax thermal coal import restrictions as we are entering Q4? Our take on the situation is that Chinese coal prices are uncompetitive, and stocks are low, therefore NDRC could relax its stance on issuing licenses for the purchase of seaborne thermal coal.

  • China and Australia have their regulations for vessels calling at their ports and have imposed a number of measures in order to contain the spread of Covid19. This means more delays for the dry bulk movement of goods and is more related to logistics such as crew repatriation and potential deviation to third ports for crew changes. This can in turn squeeze tonnage supply in the Pacific at the time when tonnage availability is tight.

  • Commodities trader Trafigura on Friday proposed a carbon levy of $250-$300 per tonne of carbon dioxide (CO2) equivalent on shipping fuels to make zero and low carbon fuels more economically viable and competitive. This would add a considerable burden on shipowners and one they say should be shared by both parties, and not just the shipowner.

  • The resurgence of Covid19 around the world could cause substantial problems in the overall supply chain logistics of the dry bulk market, but at this stage, it is quite difficult to quantify and in which direction it could pull the market.

Spot indices and weekly FFA traded prices:

BDI: 28/09: 1654, 02/10: 2020

5TC BCI: 28/09: $23,733/day, 02/10: $33,066/day

4TC BPI: 28/09: $11,176/day, 02/10: $ 11,019/day

  • The Cape spot 5TC index grabbed all the attention once again as it rose more than $8,000/day and a further 39.32% this week to reach $33,066/day.

  • As the Cape market was roaring away on the physical market it created a heavily backwardated FFA price curve. The October FFA contract was the center of attention and consequently rose far more than the balance of contracts for 2020.

  • October trades presently at $28,500/day, whilst the November prices at $23,000/day and December at $18,500/day. This simply indicates that there is a lack of confidence amongst market traders, implying that this present bull run could stop in its tracks within the next 2 weeks.

  • The trading volumes were on par with last week's number of transactions as more than 38,000 contracts traded in the last 5 days, compared to the similar 38,000 last week. This is not surprising as the volatility and speed of spot market improvement pushed traders having to readjust their position quite significantly.

  • October 5TC Capes weekly trading range: High of $28,500/day, low of $24,000/day.

  • October 4TC Panamax weekly trading range: High of $12,600/day, low of $11,700/day.

  • Technically nothing has changed since last week as far as the larger sizes are concerned. We are now even more in overbought trading conditions based on spot 5TC, but our experience tells us that we could be in that zone for a few more weeks.

  • On the other hand, technicals on Panamax 4TC show a potentially bullish picture which could be confirmed with stabilising spot freight prices.

Weekly Traded Volumes:


Capes/ Steels/ Iron ore

  • Multiple industry associations have written to PK Sinha, principal advisor to Prime Minister Narendra Modi, to ban exports of Indian iron ore to make up for the shortage of the important raw material for steel-making in the domestic market.

  • Iron ore futures ticked up above $115/tonne this week amid growing profits for industrial companies in China.

  • According to data from the National Bureau of Statistics, profits at Chinese industrial enterprises rose for a fourth month, as the continued recovery of production and falling costs culminated in better mining profitability.

  • Global Steel production in August 2020 continued to pick up to its highest level in 2020 at 156 million tonnes. August 2020 is the first time this year that we have seen a positive YoY increase in Steel production compared to 2019.

  • January to August 2020 Steel production volumes still remain around 50 million tonnes or 4% lower YoY compared to the same period in 2019 with Europe, North and South America continue to lag behind in production volumes as we enter Q4 2020.

  • Asia continues to see strong growth in Steel production volumes for August 2020 which recorded a 5% YoY increase in the month, marking the strongest YoY increase in 2020 Steel production since March 2020. The Asian steel recovery is very much driven by China, but countries like South Korea and Vietnam have also improved their production levels.

  • India's steel exports are slowing down with exports falling for a second straight month in August, as domestic steel consumption increases. August exports fell by 24.5% from July to 1.04 million tonnes, while domestic demand increased by 7.7% to 6.08 million tonnes. India's steel exports surged in the months following India's nationwide lockdown that started on 25 March, with China emerging as India's largest buyer despite tensions on the Indo-China border. China's share of Indian steel exports rose to 38% in August as compared to 0.05% in August 2019

  • We are still quite bullish on global steel demand but could face rising price volatility due to reactivated idled capacity and growing uncertainty over another lift in virus infections.

  • China is posting a new record for a 5th consecutive month: +10% YoY or close to 95 million tons produced.

  • As Brazil Iron Ore export volumes continue to recover in Q3 and expected to continue to remain strong in Q4 2020, we see that the % share of exports heading to the Far East continue to set new highs with almost 85% heading towards the Far East. Higher exports to South Korea and Japan also continue to support the strong volumes into the Far East from Brazil. This is a positive point as each extra volume of Iron Ore exports from Brazil could generate extra tonne-mile demand

  • Iron ore 62% Fe prices hit multi-year highs of almost $130/t earlier this month, but have since cooled by around 9% to $115/t

  • Chinese demand for steel could cool off later in Q4 by rising finished steel inventories and weakening margins.

  • Stockpiles of major steel products in China stood at 15.4m tonnes at the start of this week, 34% higher YoY.

  • Mills are also coming under increasing pressure to curb utilisation rates and sintering activity to limit pollution, and the approaching holiday period is reducing buying activity.

  • Meanwhile, iron ore shipments in Brazil and Australia both saw sharp increases last week, adding to seaborne supply

  • In week 40 Australia shipped 21.72 million tonnes of iron ore which is +11.4% WoW, whilst Brazil exported that week 8.72 million tonnes which is 17.6% higher WoW.

  • Chinese iron ore arrivals in week 40 reached 27 million tonnes, which is 1.7% more WoW.

  • With demolition activity in smaller bulker sizes subdued in comparison, deletions from the Capesize fleet will reach a four-year high this year. Some 41 capes and larger of a combined 9.15Mdwt have been removed from service since the beginning of the year.

  • Cape deliveries have overtaken the 2019 tally as 84 capes hit the water in 2020, representing an increase of 18.5 million dwt, with net fleet growth running at close to 3%

  • Capes freight prices literally exploded this week on the spot market as unabated demand from the major iron ore charterers gave shipowners in the right place at the right time the opportunity to capitalise greatly.

  • The main C3 iron ore route Brazil to China rose from $20.50 to $ $23.35 this week whilst the Australia to China route C5 started the week at $8.80 and concluded today at $9.75.

  • The main cape 5TC index showed similar strong improvements as Monday printed $23,733/day and finished the week at $33,066/day, a 39.32% increase in 5 sessions.

Panamax/ Grains

  • There were unconfirmed rumors of a coal import ban for Nov and Dec in certain Chinese ports.

  • Improved coal import activity in India has followed a 32% annual drop in coking coal imports to 17 million tons and a steam coal reduction of 25% to 29 million tonnes.

  • Bauxite exports out of Brazil dropped to 3 million tonnes in the period from January to August from 4.8 million tonnes for the same period in 2019.

  • In the period Jan-Aug, China significantly increased its agricultural purchases compared to last year’s figures, while specifically for soybeans, the imports of the oilseed were up by 15% YoY, hitting a record large volume.

  • Corn imports, last month hit a 4-year high, mainly driven by concerns for domestic supply deficit. China purchased in August more than 1mill tonnes of corn, the most recorded since April 2016.

  • US HRW futures burst 35 cents higher on Wednesday as the USDA said total wheat output would drop 5% YoY while reserves of the grain in the country are down 8% from a year ago.

  • The US’ total wheat crop is expected to reach 49.7 million tonnes, down from its 50 million tonne estimate earlier this month in the September WASDE report and 52.6 million tonnes in the 2019/20 marketing year.

  • Australia’s Bureau of Meteorology (BOM) has officially declared a La Nina weather pattern has established in the Pacific Ocean and expects the phenomenon to persist until at least January of 2021, according to an update published Tuesday.

  • La Nina events in the Pacific Ocean are known to shift rainfall patterns globally, with wetter-than-average conditions expected in Australia – which could boost the country’s wheat production.

  • Northern parts of India, Indonesia, northern Brazil as well as parts of southern Africa also typically receive more than average rainfall as part of the phenomenon.

  • September could be the lowest month since 2018 of Panamax deliveries, but with low levels of scrapping the net growth of the Panamax remains high at 4.3% and is the fastest-growing dry bulk sector.

  • The Panamax order book as a proportion of the existing fleet has slipped to 6.2% compared to 9.5% at this point in 2019.

  • The Panamax 4TC index took a slightly different turn compared to the larger Capes, as it struggled to confirm last week's positive trend. Monday printed at $11,176/day whilst last night it closed at $10,939/day.

  • Time charter levels in the Atlantic basin this week remained stable as the tonnage availability is matched by decent cargo demand from the continent and the US East Coast.

  • The Pacific trading area saw slightly weaker rates fixed, but some stability appeared at weeks close as the vast majority of spot ships were fixed combined with potentially more grain demand appearing next week.




 

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