The Capesize market in Q4 thus far was defined by a steady decline in BDI with a recent small uptick during December.
After its 5TC average peaked in the first days of October to US$33.500/d, it is now hovering in the very low US$15,000’s/d region. Substantial sales volume was recorded amidst a steady supply of tonnage available for sale, feeding the enhanced appetite for secondhand Cape investments during the first half of Q4.
The mix of low orderbook to fleet ratio (8% for Capes with 28mill dwt in September 2020, compared with 14% on the average during 2017-2019), “capped” NB contracting. This is primarily attributed to market, regulatory and technological uncertainties (Capesize/Newcastlemax/VLOCS newbuilding orders number just 10 units for 2020 till October). It is this environment that signaled the resilience the dry bulk market has exhibited during the 2H20, amid various trade and logistical disruptions caused by the black swan “moment’’ (albeit a long and protracted one) of the ongoing pandemic.
With Chinese economic stimulus propelling Chinese iron ore imports and swelling crude steel output, demand for dry bulk’s premier commodity iron ore is expected to continue supporting the market in 2021.
King Iron Ore
Iron ore performed impressively well in 2020 thus far and sealed the performance of the Cape market in 2H20.
However, Brazilian iron ore exports fell to 29.1mill tonnes in November, ending a more positive run (average of 33mill tonnes in the period June-October), reportedly due to an early start to the rainy season.
Meanwhile, Vale has announced a major cut to its guidance for 2021 expected to total 315-335mill tonnes, down from previous guidance of 340-355mill tonnes. Further, total Brazilian seaborne iron ore exports in 2021 are projected to remain well below the 2018 levels for a third year, largely attributed to the Bruhmadinho dam disaster which took place in early 2019.
That said, Chinese steel industry continued to be the major defining driver for iron ore seaborne demand, with steel production running at high rates: the 11 months to November production levels reached 961mill tonnes, up 11.8% y/y and should end the year at around 1.048bill tonnes, registering an all-time high.
China’s iron ore appetite may, however, ebb somewhat as economic stimulus impact moderates and with iron ore prices soaring to their highest levels since 2011 in US$164.39 per mt for 62% FE, up an astonishing 78% in 2020. Prices have been sparked due to rampant Chinese demand, low interest rates lowering the cost of carrying commodities and causing inflationary pressures which generally enhance commodity prices, combined with the weak dollar and lower port inventories, as well as Vale’s downward revision in its yearly production earlier in the month.
Supply glimmer of hope
The supply component of the dry bulk equation is offering some respite as tonnage growth is expected to abate in 2021 with a Capesize orderbook of 17.1 mdwt, down from expected 2020 deliveries of 24.8 mdwt.
The Cape orderbook for 2022 stood in November at 5.3 mdwt, with 12 Capesize NB orders contracted up until November, marking the lowest level of Capesize NB contracting during the last 2 decades, with about 4mdwt contracted in 2020, down from 14.3 mdwt in the same period during 2019 – a 70% y/y decrease.
The Capesize fleet evolution in terms of vessels delivered is 75 vessels for 2017, 51 vessels for 2018, 80 vessels for 2019 and 86 vessels for 2020 (as of November) plus 20 more estimated for full 2020. As for the coming years, 67 vessels are scheduled to deliver in 2021 and 14 vessels in 2022, adding to 20 till year end 2020, totaling 101 Cape deliveries until 2022. Regarding removal of capacity from the fleet, a total of 45 Capes have been scrapped till November whipping out 11 mdwt of Capesize capacity.
Rampant secondhand investment
The Capesize market entered the fourth and final quarter of the year in a bullish mood and the Cape asset values appeared resilient due to an extent of a flurry of sale candidates particularly, but not only, from Far Eastern sellers.
But as we progressed through Q4, October to November, the earlier than anticipated Brazilian rainy season combined with ongoing issues with Vale’s production, dented Atlantic demand and consequently translated in Capes losing steam gathered earlier in the year since June/July. That has been factored in asset values with notable sales like ore carrier m/v Gaia Celeris (229,045dwt blt 2006 Namura) reported sold at region US$12 mill to Singaporean Buyers early December, one of few ore carrier sales concluded within 2020, marking a reduction in values compared with reported sale of m/v NSS Honesty (229,548 dwt blt 2007 Mitsui) reportedly sold region US$13.5 mill end of October and of m/v Vathy (229,186 dwt blt 2004 Namura) which sold for US$13 mill in September.
Albeit Capesize secondhand sales were in slim volumes after third week of N0vember, last week (week 51) has seen the emergence of transactions concluded with the rumored sales of m/v Netadola (207k dwt blt 2017 Jiangsu New Yangjijian SS/DD May 2022 – Tier II scrubber & BTWS & mewis duct fitted) which was rumored committed at region US$38 mill to Greek buyers, sister vessel m/v Xanadu (206dwt blt 2017 Jiangsu New Yangjizian , SS/DD May 2022 , Tier II , scrubber & BWTS & mewis duct fitted) which was rumored committed at US$38 mill to financial buyers, m/v MG Courage (206dwt blt 2007 Imabari SS/DD June 2022 BWTS fitted) rumored committed at region mid US$14’s mill to Greek Buyers, m/v Spartacus (179k dwt blt 2011 Sungdong SS/DD Aug 2021) rumored committed at region US$18.75 mill to financial buyers and 3 Rickmers Capes, E.R. Borneo (178k dwt blt 2010 HHI SS April 2022) E.R. Bayonne (178kdwt Blt 20210 HHI SS April 2025, DD May 2023) and m/v E.R. Buenos Aires (178kdwt Blt 2010 HHI SS June 2025 DD April 2023 ) sold to Greek listed buyers region US$39 mill plus US$2.1 mill in shares.
In the light of vaccine hopes, the end of the US Presidential race with the usual hopes accompanying each new administration, the possible softening of trade tensions and the enhanced dry bulk demand, we can dare feel relatively optimistic for a recovery in 2021, in freight market as well as asset prices.
Source: EastGate