- Capesize segment outperforms on bauxite and iron ore demand.
- Chinese stockpiling underpins freight strength.
- Fleet expansion raises oversupply risks across segments.
The dry bulk freight market has surprisingly picked up steam in recent weeks, which is quite a turnaround from the sluggish performance we saw in the first half of the year, as highlighted in MSI’s HORIZON Dry Bulk report of December, reports All About Shipping.
Capesize Market Takes the Lead
One of the standout aspects of this recent recovery has been the impressive performance of the Capesize segment. This boost has been fueled by a significant increase in Guinean bauxite exports, which jumped by 35% year-on-year from January to August. Meanwhile, demand for iron ore in China has rebounded after a slow start to the year, adding even more momentum to the market.
Iron Ore Trade and China’s Restocking Phase
The rise in Chinese imports has supported strong export volumes from Brazil and Australia, and this trend is expected to continue as China enters a restocking phase. However, the iron content of the ore being traded by sea has decreased, which reflects the high output from blast furnaces in China. While this has helped maintain volumes in the short term, MSI warns that this effect might diminish once higher-grade Simandou material becomes more readily available.
The initial loading of Simandou ore this month generated a lot of interest, but MSI is cautious about its immediate impact. Any significant disruptions to trade flows are unlikely until later next year. For now, China’s ongoing stockpiling of iron ore and bauxite is the main factor driving Capesize demand as we approach the end of the year.
Caution Over Near-Term Fundamentals
“While near-term fundamentals are positive, much of the current strength is being driven by temporary factors, namely Chinese stockpiling of iron ore, bauxite and soybeans,” says MSI Analyst James Benali. “Support will unwind as we move into early next year, when the seasonal Lunar New Year import demand slowdown could be prolonged by China’s elevated inventories.”
Fleet Growth Raises Oversupply Concerns
On the flip side, there are some demand-side risks to consider, especially with the dry bulk fleet expected to grow significantly. About 35 million Dwt is projected to be delivered in 2025, followed by another 42 million Dwt in 2026. This large orderbook presents particular challenges for the Panamax segment, which has around 16 million Dwt scheduled for delivery.
When you factor in the weak fundamentals of the coal trade, the Panamax sector is facing a heightened risk of oversupply and downward pressure on earnings. The Handymax segment is also at risk of oversupply, though to a lesser degree, with an orderbook of about 12 million Dwt.
Earnings Pressure Expected from 2026
As fleet growth continues to strengthen, we anticipate that softer cargo volumes, especially once the current stockpiling phase comes to an end, will significantly impact freight earnings and asset values. Consequently, MSI predicts that rates will face ongoing downward pressure starting in the first and second quarters of 2026.
FFA Market Optimism Not Fully Justified
This perspective shapes MSI’s cautious outlook on earnings, even though there’s a growing sense of optimism in the FFA market, particularly regarding Capesize vessels.
“The Q2-26 FFA contract has climbed steadily from around $19,200/day in July to $23,700/day in November, a 23% increase, reflecting a notable improvement in forward sentiment that is not fully justified by developments in MSI’s analysis of the underlying market fundamentals.”
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Source: All About Shipping
