Capesize ship owners have reasons to be cheerful as the summer nears its end. As stated in Cotzias Intermodal Shipping’s latest weekly report, “the upward trend in the Capesize segment is definitely being supported by the strong momentum in the key iron ore trade routes. The price of high quality iron ore is now trading up around 47% from its 2017 lows just two months ago as Chinese anti-pollution crackdown on its heavy industries has forced the country’s steelmakers to chase high-quality imports and avoid domestic producers that contend with Fe content in the 20%-range”.

Christopher T. Whitty, Commercial Manager Cotzias Intermodal Shipping Inc. noted that “environmental inspections in China have caused great impact on prices of the commodity. Production in some mines, processing plants and mills is already being disrupted. The import price of high quality 62% Fe content iron ore in North China jumped again as the country’s steelmakers stoke production ahead of mandated cuts going into winter. In general, China’s steel production last month rose to a record 74m tonnes, which is more than 10% compared to last year, with some analysts believing that, up to a certain extent, this has to do with traders worrying about a steel supply crunch in the near future. Evidently, Beijing wants to ensure that the industry cuts output by as much as 50% during winter months to fight smog, particularly in its capital city and surrounding areas”.

The shipbroker went on to state that “as an example, in Hebei province which is one of China’s key producing regions, steelmakers said they will have to comply with stringent new emissions regulations by the September 1st deadline. Last week, Capesize iron ore freight rates were flirting with 2017 highs on all key iron ore routes from Australia, Brazil and South Africa to China on robust tonnage demand and seasonal pickup coupled with a firming freight derivative market. The Tubarao to Qingdao 170,000 mt (plus/minus 10%) route was assessed Thursday at $17.25/wmt, which corresponded to a TCE of $19,308/day. The Saldanha Bay-Qingdao 170,000 mt (plus/minus 10%) route was assessed at $13/wmt, with a TCE of $19,879/day. The Port Hedland, Australia to Qingdao, China route, for 170,000 mt (plus/minus 10%) was also assessed at $7.50/wmt, the highest so far this year. The previous 2017 high was $7.20/ wmt on March 28. The push in the Port Hedland-Qingdao freight rate saw the time charter equivalent (TCE) assessed at $19,308/day on this route”.

Meanwhile, “fearing steel shortages in Q4 2017 and Q1 2018, participants are said to be stepping up the stockpiling steel currently. While the mood is upbeat in the Capesize segment, some market watchers feel the burgeoning vessel supply side could be a concern. The market seems like it is firming up on sentiment, but analysts are still concerned that the current supply of ore is more than matched by the supply of Capesizes. Over the last two years, the oversupply of Capesize vessels was keeping a lid on freight levels. Approximately 69 Capesize plus VLOC newbuildings have been delivered so far this year, the same as in the corresponding period last year. However, demolitions of older Capesize tonnage have taken a backseat with just 20 vessels torched year to date compared with 71 ships in the same period last year”, Cotzias Intermodal Shipping concluded.