Capesize bulker rates have fallen considerably in the past three weeks, but experts say they should pick up next year on the backs of a robust Chinese economy and high iron-ore prices.

The weighted time charter equivalent (TCE) average for capesizes reached $34,896 per day three weeks ago. But they fell by more than 50%, before reaching $18,606 per day on Tuesday, according to Baltic Exchange assessments.

The drastic drop happened as a result of a "steep correction" amid slower cargo flow and high vessel supply in the Atlantic Basin, Breakwave Advisors said in a bi-weekly report.

However, capesize rates should head back up at the start of 2021 if Brazilian iron-ore giant Vale meets its expectation to fill a 9m-tonne gap between sales and production — the latter reaching 11m.

"Such a discrepancy is highly unusual, and it represents the highest deviation for any quarter since at least 2011," Breakwave Advisors said.

But Vale is also optimistic about raising production by about 40m tonnes, boosting tonne-mile demand on capesizes.

Beyond that, Breakwave Advisors said iron-ore prices should stay above $100 per tonne and therefore incentivise miners worldwide to ship as much of the commodity as possible.

2021 looks like fun

"With less than three months till year-end, the prospects for 2021 start to look promising," it said. "China’s economy seems quite strong, while stimulus continues to make its way through the system."

The country's demand for coal remains "solid" amid low inventories, and other countries might start reopening their economies, [which] might give an added boost to capesize rates.

"Freight futures remain sceptical of such scenarios, trading at significant discounts to current spot levels, especially for capesizes," Breakwave Advisors said.

"We view such price fundamentals' disconnect as an opportunity, with the risk-reward tilted towards long positions."

The freight forward agreement (FFA) for capesizes stands at $11,178 per day for January and $7,763 per day for February, according to Baltic Exchange data.

Those FFA estimates showed up as global steel production for August that excludes China and came in at 63.8m tonnes, 7% lower than a year earlier, Braemar ACM said in its weekly report on dry bulk shipping.