As bunker rates finally level out, Capesize rates enjoy a slight boost, but shipping insiders warn that it's a short-lived trend.
Based primarily on low availability and high demand in trans-Atlantic shipments, Capesize freight rates jumped nearly 30 percent in the third week of May, and over 40 percent leading into the fourth week of the month. The boost was in stark contrast to earlier in May, when gains barely reached 3 percent week-on-week. However, shipping sources tell SteelOrbis that new builds flowing into the market will soon dampen the strong uptrend in Capesize rates, eventually leading to a rollercoaster trend of highs and lows between the introduction of new ships.
Also affecting the near-term Capesize rate trend is the decrease in Chinese iron ore imports in the next few months, due to restrictions from government-mandated electricity allocation. There is a strong chance that electricity cuts to steel mills in the summer will curb production, in turn lowering demand for imported iron ore. April data from China's steel industry already show this trend in action. China's iron ore imports in April dropped 11 percent compared to March, while the country's crude steel production only dropped 0.5 percent month-on-month.
Additionally, China's status as a net coal importer is slowly shifting to focus on domestic coal production. Australian coal prices have increased nearly 40 percent in the last year, whereas domestic Chinese coal price increases have not been as sharp. Not only has China started to become less reliant on Australia for coal, it has turned its attention to land-locked Mongolia for coking coal, which eliminates ocean freight shipping from the equation entirely.
Handymax rates, on the other hand, have leveled off along with rising bunker rates in the last couple months, even dropping by marginal percentage points week-on-week. In the beginning of this month, Handymax rates dropped a meager 0.9 percent from the week prior, and going into the last week of May, rates dropped again by only 0.3 percent. A small portion of the downtrend can be attributed to delayed shipments bound for the Mississippi River, which has suffered from abnormal flooding since late-April. Until the barge situation is clear, some ocean freight destined to transfer to river barges has been put on hold for the moment.
Parcel shipment rates have also experienced a downtrend in the last month--the across-the-board $7/mt gain in February has been entirely revoked for some routes after two months of stability, while other routes saw even greater declines. Current Handymax rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are now as follows:
Baltic Sea to US East Coast: $60/$65mt (down $7/mt)
Baltic Sea to US Gulf Coast: $60/$65mt (down $2/mt)
Black Sea and Mediterranean Sea to US East Coast: $50/$55mt (down $17/mt)
Black Sea and Mediterranean Sea to US Gulf Coast: $50/$55mt (down $12/mt)
East Asia to US Gulf Coast: $62/$65mt (down $5/mt)
East Asia to US West Coast: $58/$63/mt (down $4/mt)