- Spot Market Defies Contango, Closing Gap with Futures.
- Iron Ore Rebound in Australia Triggers Sharp Rate Increases.
- Sub-Cape Sectors Lag as Grain Shipments to China Remain Sluggish.
The dry bulk market proved once again that no contango is too severe to overcome. Spot Capesize rates skyrocketed within a matter of days, almost paralleling an extremely steep futures curve. The spiking was propelled by robust demand for mid-to-late March vessels, most notably in Brazil (iron ore) and West Africa (bauxite), even with the ongoing availability of spot vessels, reports Break Wave Advisors.
Iron Ore Rebound in Australia Fuels Rate Surge
Australian iron ore cargo demand recovered steeply after experiencing weather-related delays during February. This rebound registered a spectacular escalation in spot rates in the area, supporting overall market stabilization against seasonal trends.
Sub-Cape Sectors Trail as Market Remains Insecure
Although the Capesize market has been robust, the next upward leg will have to be assisted by sub-cape segments, which have until now lagged. Chinese grain imports are still slow as a result of trade tariffs and economic uncertainty, dampening Panamax rates. Moreover, the expected seasonal increase in Panamax spot rates has not yet happened.
Short-Term Pause Expected Before Further Gains
Even with the recent recovery, a short-term pause in rising action is anticipated. Macroeconomic events during the next few weeks will be decisive in determining market trends. Several significant events are likely to bring about dramatic volatility, maybe altering trade routes and long-term shipping patterns.
U.S. Tariffs and Chinese Shipping Fees in the Crosshairs
Trade tensions continue to be at the centre of economic uncertainty, with potential ramifications for world shipping. The U.S., while a minor participant in total dry bulk trade, is pivotal for sub-cape demand, especially in the grain market. China’s continued attempts to diversify its grain imports away from the U.S. have been detrimental to Panamax rates, and it is unclear if trade negotiations will reverse this trend.
Moreover, proposals for possible Chinese-built or Chinese-owned ship fees at U.S. ports could cause trading patterns to be disrupted. These restrictions, if adopted, would make freight more expensive in the Atlantic and lower the availability of ships at some periods. As there is no past precedent, it is hard to tell the extent of the effect of these policies, but limitations on port use generally result in increased costs to consumers.
China’s Economic Stimulus: A Game Changer for Shipping
China’s National People’s Congress (NPC) is likely to announce key policy measures to target ~5% GDP growth in 2025 and combat disinflation, perhaps with an inflation goal of ~2%. Though large-scale government stimulus is predicted, it remains uncertain whether such measures will support steel-intensive construction and, indirectly, dry bulk shipping. Recent indications point towards a move to stimulate consumer demand instead of excessive infrastructure expenditure.
Geopolitical Developments Remain a Driver of Global Trade
The recent years have witnessed heightened geopolitical uncertainty, and this is anticipated to continue, affecting global trade as well as vessel supply. As shipping grapples with changing trade policies and fluid demand levels, volatility is bound to remain high.
China’s Possible Rebound and Constricted Fleet Growth
A multi-year cyclical recovery in China’s economic activity could add further intricacy to the dry bulk market. In addition to firm bulk commodity demand and sluggish fleet expansion due to a relatively low order book, dry bulk shipping is set to experience increased volatility and long-term market tightness.
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Source: Break Wave Advisors
