Dry bulk freight rates hit their lowest since 2016

Dry bulk freight rates have fallen to their lowest since 2016 in some markets, as shipowners rush to secure cargoes at any cost.

The rate between west Australia and north China ended the day at $3.60/t — its lowest since 12 May 2016. And freight between Tubarao in Brazil and Qingdao in China dropped to $7.80/t — its lowest since 25 May 2016.

Both markets show signs of declining further despite shipowners' returns reportedly already being below operating costs on these key routes.

Bunker fuel prices — which make up a substantial percentage of operating costs — are relatively steady compared with May 2016, meaning that shipowners' returns from freight rates are similar. Their returns in 2016 are often cited as the lowest in 30 years, but 2020 could match those levels, with few indications that Capesize rates will rebound in the coming weeks.

Shipowners have this year switched to 0.5 sulphur fuel as mandated by the International Maritime Organisation (IMO), moving away from the 3.5pc sulphur material they used previously, including in 2016. The cost of 0.5pc sulphur bunker fuel in Singapore averaged $235.19/t last month, compared with an average of $219.95/t for the 3.5pc sulphur grade in May 2016.

Rates fall on Atlantic slowdown

Dry bulk rates have crashed on the back of a lack of activity in the Atlantic basin — some of which is related to Covid-19.

Brazilian iron ore exports in particular were lower on the year in the first quarter, and leading producer Vale has reduced its export guidance for the year because of the pandemic-related slowdown in China.

The company's new guidance for iron ore fines production stands at 310mn-330mn t, down from 340mn-355mn t, while its pellet production guidance is down to 35mn-44mn t from 44mn t.

Shipments rose in April, unlike in the first quarter, climbing by 5mn t on the year, but little of this reached the spot bulk carrier market as Vale has grown its Valemax — 400,000 deadweight tonne vessels — fleet by enough to account for nearly all of its spot iron ore shipments.

Volumes exported from Brazil may also be sliding again. In the first quarter of May, the country exported 5.2mn t of iron ore, putting it on track to ship 20.9mn t this month, which would be nearly 9mn t lower than in May last year (see table).

The slowdown from Brazil has been matched by a dearth of activity in the north Atlantic. Colombian coal producers were closed for much of April because of the coronavirus, and demand is limited in any case because of falling European coal consumption in recent years.

Without these cargoes in the Atlantic basin to draw vessels away from the Pacific, almost the entire spot Capesize fleet is remaining close to west Australia. This has given charterers a wide range of tonnage to book and swamped any momentum for rate increases, despite a recent pickup in Australian iron ore exports, which rose by 18.4mn t on the year to 75.19mn t in March (see table).

For Australian daily iron ore exports see the attached Australian Iron Ore Shipments D&D.

By John Ollett