Capesize rates dropped 20pc over the last week on the back of lower iron ore demand in China and sliding chartering activity.
Capesize freight rates on the bellwether west Australia to China route collapsed this week, falling by 20pc to $8.85/t on 26 October compared to the recent peak of $11.15/t on 18 October.
The end of the fourth quarter is traditionally the highest point of the year for freight rates across all vessel classes. But in recent years the Capesize market has peaked at the beginning of October instead — with November and December being volatile but not reaching the highs of September and October.
Capesize coal shipments typically peak in November and December ahead of the coldest winter months, with iron ore more traditionally shipped in September and October. In recent years, Europe has moved away from coal and increased its use of natural gas for power generation, which has reduced the number of Capesize coal cargoes available — making September and October the busiest time for the Capesize market.
Natural gas prices have dropped in October. The TTF day-ahead market decreased to $539.45/m³ on 26 October from $622.04/m³ on 16 October, which encourages power generators to use natural gas at the expense of coal, limiting the demand for Capesize cargoes.
In 2022, the west Australia to China route peaked on 20 September at $10.25/t, while in 2021 it peaked on 6 October at $23.55/t.
The current slide is likely the beginning of a seasonal slowdown, with falling Chinese iron ore demand putting rates under pressure. Steel production in China fell in September by 5.6pc year-on-year to 82.1mn t, according to World Steel Association.
But China is set to issue additional sovereign debt bonds worth 1 trillion yuan or approximately $137bn to be used in infrastructure projects in the country. A rush of infrastructure spending typically supports steel and iron ore demand, and could soften the falling Pacific Capesize market.
The Capesize market has come under further pressure in the Atlantic basin as Brazilian iron ore loadings from the northern port of Ponta da Madeira fell in October following the production issues in Vale and a number of ballasting vessels coming to the Atlantic.
By Andrey Telegin
