Asia Dry Bulk-Capesize Rates Should Remain Flat

Posted by Joseph Keefe February 4, 2016

Western Australia-China rates hit near 17-year low; owners explore laying-up ships.

Freight rates for capesize bulk carriers on key Asian routes should remain flat next week as the Lunar New Year holiday in China will curtail chartering activity, shipbrokers said on Thursday.

Capesize rates from Western Australia to China hit a near 17-year low on Wednesday after Rio Tinto fixed a capesize ship at a rate of $2.85 a tonne, said a Shanghai-based capesize broker.

But the prevailing rate for the route has been around $3 per tonne this week, Reuters chartering data showed.

"I've heard owners expect the market to go up, but so far there is no sign of that happening," the Shanghai broker said.

"China will be quiet next week so I don't expect many fixtures," the broker said.

There were no reported fixtures this week from Brazil and just a handful of charters from Australia to China by Rio Tinto and Fortescue Metals Group, Reuters freight data showed.

"The market will be dead next week. Charterers, owners, brokers will all be on holiday," said a Singapore-based capesize broker.

China has a week-long holiday, while other markets including Hong Kong will be closed for several days.

The capesize market remained over-tonnaged with daily earnings about 50 percent lower than daily operating costs leading owners to idle ships, brokers said.

"Owners are exploring the opportunities for laying up tonnage but so far few ships have actually been laid up," Norwegian ship broker Fearnley said in a Wednesday note.

Idled ships have a full crew onboard and are available for charter, but laid-up vessels have a skeleton crew and some shipboard systems are shut down.

"It is estimated that cold lay-up will cost around $1,500 per day for a standard capesize. Rates are currently below $4,500 which is why cold lay-ups over the coming months will doubtless become more commonplace," a report by ship valuation firm VesselsValue said on Tuesday.

Capesize charter rates for the Western Australia-China route slipped to $2.88 a tonne on Wednesday, the lowest since June 1999, from $3 per tonne last week.

Rates for the Brazil-China route nudged up to $5.56 a tonne on Wednesday, the highest since Jan. 14, against $5.46 a tonne a week earlier.

Panamax rates for a North Pacific round-trip voyage fell to $1,959 per day on Wednesday, near the lowest since January 2009, compared with $2,118 per day a week ago.

"There is no light at the end of the tunnel. The market has been subdued all week," said a Singapore-based panamax broker on Thursday.

Freight rates for smaller supramax vessels were unchanged from last week.

"The market can only go one way. And as such we may see upward movements on the back of seasonal demand, but it is unlikely to be sustainable," the Fearnley note said.

The Baltic Exchange's main sea freight index dropped to a new all-time low of 303 on Wednesday, against 337 the same day last week.