Cape rally underway?

Rates for capesize bulkers trading in the spot market are starting to show moderate gains and many believe levels will continue to rise in the weeks ahead.

Today, capes were commanding $12,000 per day which, according to Global Hunter Securities, is 2.5% higher than yesterday and 9.9% above the average seen seven days ago.

In a note to clients equity analyst Omar Nokta attributed the rise to an uptick in activity in Australia where charterers fixed tonnage to transport iron ore to China.

While Nokta acknowledged that rates have remained range bound, stuck between $10,000 and $13,000 over the past several weeks, he said this might end in the weeks ahead.

“The June FFA contract is trading around $14,000 per day, which signals some modest additional upside is expected in the next few weeks and then a larger rally is expected in the second-half [of 2014] where FFAs are averaging $23,500 per day,” he added.

A leading industry researcher who spoke to TradeWinds about the dry-bulk market on the condition of anonymity Wednesday said he wouldn’t be surprised to see day rates for capes trading in the spot market hit a high of $20,000 by the end of this month.

“Now is when capesize spot vessel availability is finally becoming tight again, and with Chinese demand for cheap iron ore imports poised to remain robust, demand for capesize vessels are set to find even greater support,” he said in an email exchange.

The forecaster, who is the same market source who correctly recently predicted that rates would start to gain traction in early June, argued that the recent decline in spot iron ore prices is due in part to the surge in new Australian and Brazilian production.

"Also very encouraging is that many small and medium-sized Chinese domestic iron ore mines are now suspending iron ore production because the mines in China have very high costs and can't make money on the low spot iron ore prices,” he added.

"Australian and Brazilian iron ore miners have much lower costs, though, and are still making large profits, so iron ore keeps being pumped out of Australia and Brazil and is happily being purchased and consumed in a huge amount by Chinese steel mills.”

Earlier in the day a team of equity analysts at DNB Markets issued a daily research note in which they explained why the investment bank agrees that there’s a good chance the capesize segment and other subsectors of the dry-bulk market will rebound in the second half of this year.

The firm said its “optimistic view” is supported by the fact that double-digit fleet growth is a thing of the past and the ongoing strength of demand for dry-bulk commodity transportation services on the heels of record-high investments in global mining capacity.

It argued that expanded production of iron ore and coal in Australia and Brazil will outstrip domestic production in China and pointed out that iron ore exports from the former and the latter increased by roughly 27% and 4.4% year-on-year in early 2014, respectively.

DNB Markets said Chinese imports rose by approximately 20% between January and April of this year and acknowledged that, going forward, the commencement of exports from a pair of new Brazlian superports are a key component of its thesis.

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