- Limited Fleet Growth and Robust Commodity Demand Support Capesize Market.
- Ageing Fleet and Low New Orders Boost Long-Term Capesize Earnings Outlook.
- Iron Ore Imports and New Guinea Project Drive Capesize Demand Growth.
In the shipping industry, freight rates expressed in USD per day indicate the daily cost of leasing a vessel. These rates are primarily influenced by the demand for essential commodities and the availability of ships to transport them, reports Break Wave Advisors.
Market Outlook: Short-Term Volatility, Long-Term Strength
While we see some short-term fluctuations in freight rates due to cautious economic sentiment and shifting trade policies, the long-term outlook for Capesize vessels is looking quite positive. This optimism is fueled by a limited growth in vessel supply, paired with a steady and robust demand for major dry bulk commodities.
Vessel Supply Constraints
Currently, the order book for Capesize and Newcastlemax vessels sits at just under 8%, marking one of the lowest levels we’ve seen historically. This is particularly noteworthy given the rising demand for fleet renewal, driven by stricter environmental regulations. Approximately 10% of the existing fleet is over 20 years old and is facing increasing costs to meet these environmental standards.
New orders are scarce due to limited shipyard capacity, high prices for new builds, and uncertainty surrounding propulsion technologies. So far in 2025, only six new Capesize and Newcastlemax vessels have been ordered, a stark contrast to the 77 ordered throughout 2024.
Steady Demand for Transportation
The global steel demand is holding strong. While China’s steel production has remained relatively stable compared to last year, there has been a noticeable increase in iron ore imports. This is largely due to the depletion of local mines and a growing preference for higher-grade imported ore.
Earlier this year, Australia faced some challenges with its iron ore exports due to flooding and cyclones, resulting in a 2.6% drop in volumes so far this year. Nevertheless, miners are sticking to their export forecasts for 2025, hinting at a possible recovery as the year progresses. On the other hand, Brazilian iron ore exports have risen by 4.6% year-to-date, thanks to improved efficiency and the production of higher-grade ore by Vale. Since Brazilian shipments require about three times the tonnage of those from Australia, this growth significantly boosts the demand for Capesize vessels.
The Impact of the Simandou Project
The Simandou iron ore project in Guinea is set to kick off exports in November 2025. With one of the most cost-effective production setups in the world, Simandou is poised to revolutionise the market by facilitating long-haul, premium-grade trade exclusive to Capesize vessels.
Structural Opportunities Across Commodities
Looking ahead, iron ore ton-miles are expected to grow by around 5% annually in 2026 and 2027. Guinea’s bauxite exports have skyrocketed by 43% this year, with full-year production projected to jump from 145 million tons in 2024 to 200 million tons, driven by the increasing demand for aluminium.
On the flip side, thermal coal imports have dipped about 8% this year due to high inventory levels and a rise in hydropower generation in China. However, as stockpiles start to stabilise, we can expect seasonal demand to pick up again in the latter half of the year.
Outlook: Tightening Capesize Utilisation
Overall, the demand for key Capesize commodities and raw materials remains robust, fueled by global infrastructure projects, energy needs, and manufacturing growth. Coupled with an extremely low growth rate in the fleet and structural efficiencies like slow steaming and more frequent dry dockings, we anticipate a gradual tightening in Capesize vessel utilisation.
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Source: Break Wave Advisors
