Owners of capesize and panamax bulkers could be in for a disappointing end to the year with little upside to current spot rates, according to new analysis.
Indicators point to a dive in iron ore prices, which could offset the gathering optimism from lower interest rates and commodity demand, market data platform Maritime Strategies International (MSI) said in its latest Dry Bulk Outlook.
“While steel demand in China has been underwhelming for some time, thanks in part to the malaise in domestic property, the market seemed focused on the potential for fresh government support measures,” said Plamen Natzkoff, MSI’s associate director.
“With confidence in a rapid recovery of construction activity now seemingly lost, the apparent oversupply in the market, with persistent weakness in China’s steel output and bulging iron ore stockpiles, is now reflecting into a sharply lower iron ore price.”
MSI thinks there will be “only limited upside” in capesize spot rates from current levels during the fourth quarter, seasonally the strongest period of the year.
Fundamentals in China’s steel sector “ever more disheartening”.
Steel demand and production are lagging behind year-ago levels and the profitability of steel mills is “plugging new lows”.
On Monday, Baltic Exchange panellists added an extra $1,235 to their assessment of average capesize spot rates, weighted across five key routes, putting it at $26,935 per day.
But that could be about as far as the spot market goes this year, according to MSI, which expects average capesize spot rates to peak during the final quarter at roughly $27,000 per day.
It forecasts one-year period rates for capesizes of $25,000 per day in the fourth quarter, around the same level as today, but it thinks this estimate will fall to below $20,000 per day in the first quarter of 2025.
It forecasts capesize spot rates will fall to just over $15,000 per day early in 2025, seasonally the weakest time of the year.
Iron ore prices have dropped about 10% since the start of August and are now 30% lower than at the beginning of the year.
Interest rates have long been expected to be cut, which could happen by the end of this year, potentially supporting industrial activity and incremental commodity demand, in MSI’s view.
Other sentiment indicators such the Manufacturing Purchasing Managers’ Index have fallen for most major economies in the past two months, it added.
Levels of bulker scrapping hit another multi-month low in July, while deliveries remain steady at just under 3m dwt per month.
