Cape surge continues

The shipping industry was reeling Wednesday as the winning streak in the capesize segment continued unabated for a fourth straight day.

According to the Baltic Exchange day rates for tonnage trading in the spot market topped $11,800 on average, which represents a daily gain of approximately 8%.

While some industry forecasters are confident that levels will continue to rise in the days to come others fear the capesize sector is going to lose steam as the weekend draws closer.

When asked about the significance of the recent surge in freight rates researchers on both sides of the debate agreed the rally serves a well-timed reminder that earnings are expected to soar significantly in the second-half, which is well underway.

Jeffrey Landsberg of Commodore Research, a firm that specialises in dry-bulk intelligence, believes the pace of the rate revival in the capesize segment suggests the space is experiencing a dramatic shift that warrants careful monitoring.

“The Atlantic Basin capesize market is in the midst of a fundamental shift, driven by a huge increase in Brazilian iron ore shipments,” he told TradeWinds in an email exchange Wednesday before outlining evidence that supports his forecast for the second-half.

“The shift is underway, is leading to much tighter capesize availability and will drive capesize rates much further. Iron ore shipments from Vale alone will increase during the second half of this year by approximately 185 cargoes, in addition to the volume shipped during the first half.

"140 less iron ore cargoes had surfaced during the first half of this year compared with the seasonally much stronger volume seen during the second half of 2013. Brazilian iron ore cargo always jumps by a huge amount during the second half of every year and is much lower during the first half of every year.

“This is of great importance and is exactly the opposite of what occurred during the first half of this year. Capesize vessels will also be in greater demand as coal shipments are expected to increase, and Australian iron ore shipments are set to increase even further.”

While many of the forecasters contacted about rising rates for capes declined to comment when asked whether they saw the green shoots of a broader market rebound in today’s rally nearly all said volatility is unlikely to end in the foreseeable future.

“I encourage clients not to focus on highs and lows until some time has elapsed because it’s easy to jump to the wrong conclusion in the absence of context during periods of high volatility,” an equity analyst added when pressed for further detail.

“When rates peaked back in March lots of people used this fleeting high as their primary gauge of performance. Had more relied on a year-to-year rate comparison all the folks who were disappointed with rates in the first-half would have been singing a different tune.”

Landsberg and several other market sources said they wouldn’t be surprised to see rates for capes trading in the spot market top $30,000 per day in the second-half. Some believe this is unlikely to occur until the fourth-quarter and others are confident this could happen even sooner.