Asia Dry Bulk-Capesize Rates Could Climb

Posted by Joseph Keefe May 26, 2016

More coal cargoes, rising oil prices could support rates.

Freight rates for large capesize dry cargo ships on key Asian routes are likely to rise next week on an increase in coal cargoes and higher fuel prices, ship brokers said.

That comes as Brent crude futures breached the psychologically important level of $50 a barrel on Thursday for the first time in nearly seven months.

"I'm kind of positive on how the fuel price will drive the capesize and dry bulk markets," said a Shanghai-based capesize broker.

"I think rates from Western Australia to China will hold above $4 per tonne and increase to around $4.50," the broker added.

"If coal prices provide support and there are more cargoes, and with the same amount of iron ore cargoes, then the market can be driven up."

That would follow capesize rates from Western Australia to China falling from last week's six-month high after a drop in the number of charters to around 23 fixtures in the week to Wednesday, data on the Reuters Eikon terminal showed.

"Overall sentiment is depressed but there is a hope we are at the bottom and there will be more demand," Norwegian ship broker Fearnley said in a note on Wednesday.

Ship fuel prices, which are this week pushing close to the highest level since Nov. 11, are set to climb following the increase in oil prices. That will help support freight rates, brokers said. <FO380-SIN>

Shipowners with vessels on the spot market pay for their own fuel and add a bunker premium to freight rates if fuel prices move higher, brokers said.

Longer term there is more optimism the dry bulk market will improve next year on increased cargo demand and cancelled new ship deliveries.

"If demand picks up in 2017 and half the slipped tonnage of 2016 gets cancelled, the market should be better in 2017," Aristides Pittas, chief executive of New York-listed shipper Euroseas, said in an earnings call.

Freight rates for the Brazil-China route fell to $7.84 per tonne on Wednesday, down from $8.46 last week.

Capesize charter rates for the Western Australia-China route slipped to $4.05 per tonne on Wednesday, from $4.36 on the same day last week.

Charter rates for smaller panamax vessels for a north Pacific round-trip voyage trended lower at $4,700 per day on Wednesday, against $4,829 a week earlier, on lower cargo volumes.

Freight rates in the Far East for smaller supramax vessels were again largely unchanged, Fearnley added.

The Baltic Exchange's main sea freight index fell to 605 on Wednesday, down from 642 last week.