Capesize freight rates reach year peak

Capesize freight rates reached a 2020 peak this week, despite public holidays in China, with Brazilian exports in October maintaining September's buoyant trend.

Capesize rates from Tubarao to Qingdao reached $24/t yesterday, the highest this year. This came as Brazilian iron ore producer Vale made its first November cargoes available, after a busy October. These were made available under contract of affreightment deals with operators, which then had to book ships or use their own vessels for transport.

Brazilian iron ore exports were high in September with an estimated 37.86mn t shipped during the period, up by 5.92mn t — equivalent to nearly 33 Capesize cargoes — from September 2019. If this number is fully confirmed, it would be the highest amount of ore exported from Brazil since December 2015, according to customs data. September was only the third month in 2020 when exports from Brazil rose compared with 2019, after Covid-19 limited Chinese demand for much of the year. But the impact of the pandemic has waned in China, bringing steel producers back to the physical iron ore market. The Argus ICX, the price of 62pc Fe iron ore sold in China, reached a peak of $130.55/t on 3 September and remained close to that level for most of the month. The price has since dipped to $123.05/t but remains significantly above the average of $93.30/t in September 2019.

October exports have typically been higher than September shipments in the past, suggesting that robust demand could continue, although there is often a slowdown in November lasting into the first quarter. Since the fixing window for Capesize cargoes from Brazil has now moved to November, this could indicate that freight demand and rates could start to retreat, which happened in 2018 and 2019, when rates on the route peaked for the year in September and October.

But this will be offset in 2020 by a shortage of available vessels for the November window, which has generated the current momentum in rates and is likely to support them in the near term.

Australian exports stable

In Australia, the other major global iron ore exporter, volumes have been fairly steady, but momentum in the Atlantic basin has still pushed rates higher.

Australia exported 73.6mn t of iron ore in September and 73.78mn t in August, according to Argus estimates. This was slightly above the average of 71.4mn t in January-July, but this figure was skewed by the much lower exports in the first two months of this year, when the coronavirus was at its peak in China.

Despite stable exports, Capesize rates from west Australia to Qingdao have picked up, as a result of the momentum in the Brazilian market. Australia exports nearly twice as much iron ore as Brazil, but the comparatively longer journey between Brazil and China keeps ships off the spot market for much longer when Brazilian exports are up, which helps to drive rates in the Atlantic and Pacific basins.

By John Ollett