Capesize Rates May Be Extended

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Miral Shipping Freight Market Report

Authored: May 22, 2009

Capesize Rates Extended - Pushed by Chinese Demand for Iron Ore

During the last two weeks, the freight market has been moving higher every day, and accelerating through most of this past week. Capesizes have been leading this rally, breaking the $40,000 per day barrier on the 21st, and crossing the $45,000 per day timecharter average. The trend-line has clearly broken through resistance levels set back in February of this year. Panamaxes and Handys have now started to pull back from their recent highs - they also seemed to have broken through resistance earlier in the week, but not demonstrably so.

As has been the case with most such rallies, China has been the determining factor. Iron Ore movements have increased from Brazil, as steel mills and traders have been taking advantage of lower iron ore and freight prices to stock up on higher quality ores. This has led to more vessels being fixed and even delays at certain loading ports, thereby further pushing up rates. However, stockpiles in China are widely reported to have neared or exceeded 100 million tons, and some curbs in bank lending and speculation are rumored. Therefore, some near-term pull back in demand, and consequently, Capesize rates is possible.

Panamaxes and smaller vessel types have benefited from the increased ore / minerals trade, and also from strong demand for grains in the Atlantic and to Asia.

Although technical indicators have broken out on the upside, there is also plenty of data that points to demand for vessels slowing in the near and medium term. Taken together, it is possible for a few more days of gains, but risk is increasing for a correction.


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