The dry bulk market's decline in spot rates over the past few days may indicate a pending correction after reaching levels last week not seen in a decade, market watchers say.
The capesize 5TC, a spot-rate average of five key routes, has fallen to $46,978 per day — an 8.7% drop from an 11-year high of $51,472 per day on 24 August.
Spot rates for the smaller ships have also slid, most notably panamax 5TC's 5.2% drop from $35,202 per day on Friday, according to the Baltic Exchange.
"We have been cautious in the last week or so, especially on capesizes," John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds.
"Although the congestion issue is real and will be with us for a while, I think we are entering a correction phase for dry bulk that will last a few weeks and will bring rates lower, but still above historical norms."
Kartsonas said China's plans to curb steel output is not encouraging higher rates, but dry bulk shipping has always been a cyclical market with continuous ups and downs.
"We saw rates rallying for a month, and now it is time for some consolidation," he said.
"We will find a bottom, and we will rally back higher during the fourth quarter as seasonally the demand increases, but for now, all eyes are on where such a bottom might be."
'Market is taking a breather'
The dry bulk market is experiencing volatility amid China's intent to lower steel output before the COP26 United Nations climate summit in Glasgow in November, according to Sevi Katemoglou, founder of broking house Eastgate Shipping.
"I’d say that market is taking a breather this week, somewhat correcting from the record highs achieved last week, while port congestion in key regions has been easing," she told TradeWinds.
"However, estimates for Chinese iron ore imports in August, as well as projections for the country’s total steel output for full-year 2021, remain positive and are suggestive of a shipping upcycle which has legs."
At the same time, miners are boosting coal production because of India's need to restock low levels of coal to make electricity, Katemoglou said.
The longhaul grain trade is also supporting spot rates for medium and smaller bulkers, but damage caused by Hurricane Ida to Cargill's grain terminal in Reserve, Louisiana may hurt US exports over the next two weeks, she said.
"It remains to be seen to which extent this will impact grain cargo flows and seaborne volumes."
Stamatis Tsantanis, chief executive of pureplay capesize owner Seanergy Maritime Holdings, is not worried about "any temporary rate volatility".
Headed even higher
"There is obviously some profit-taking activity coming from the paper market, which has a short-term effect on the physical market," he said.
"However, the fundamentals are fully in place for the market to sustain these levels and even go much higher."
The futures market for capesizes fell slightly on Wednesday but is still bringing in high rates.
The forward freight agreement (FFA) rate lost $1,018 for September but still came in at $41,875 per day.
October's FFA rate slid $661 to $39,964 per day, while the November figure shed $359 to $35,929 per day.
