Iron Ore Trade Boosts Capesize Demand

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Large cargo ships (Capesize) are benefiting from the strong iron ore trade between Brazil and China. However, smaller vessels like Panamax and geared ships are facing challenges due to weaker demand for agricultural exports, reports Breakwave Advisors.

Global Challenges 

Two years ago, Doric’s Weekly Insight captured a market grappling with an extraordinary set of global challenges. The International Monetary Fund (IMF) emphasized a confluence of headwinds, including Russia’s invasion of Ukraine, interest rate hikes aimed at controlling inflation, and lingering disruptions from the Covid-19 pandemic, particularly in China. These factors created a highly volatile environment that significantly impacted global trade flows and shipping markets. Against this backdrop, the Baltic dry indices fell sharply, with the Baltic Capesize Index collapsing to four-digit levels at $9,305 daily. The Baltic Panamax, Supramax, and Handysize indices followed a similarly dismal trajectory, ending the second week of November at $14,343, $12,870, and $13,727 daily, respectively.

Fast forward two years, the global economy has traversed a complex recovery path. The battle against inflation, once a dominant global challenge, has largely been won, albeit unevenly across regions. Despite a synchronized tightening of monetary policy, the global economy has demonstrated remarkable resilience, avoiding the much-feared global recession. However, the IMF warns of new risks that could derail growth: an escalation of regional conflicts, overly restrictive monetary policies, China’s slowing economy, and a rising tide of protectionist measures.

These risks, though less acute than those of two years ago, create an environment where global growth is stable but underwhelming. The current dry bulk market reflects this complex economic backdrop, with the Baltic indices displaying a mixed performance. The Baltic Capesize Index has shown a robust recovery, with month-to-date gains exceeding $10,000, closing at $26,777 daily. This recovery is in stark contrast to the lackluster performance of other segments.

Robust Performance 

Recent export data from Brazil offers crucial insights into these trends, particularly the strength in the Capesize market. In October 2024, Brazil’s iron ore exports totaled 35.3 million tonnes, a decline from the previous month’s rebound but 5.08 percent higher year-onyear. Exports to China, the primary consumer of seaborne iron ore, increased by 6 percent to 25.9 million tonnes. 

Shipments to Malaysia, home to Vale’s Teluk Rubiah distribution center, held steady at 2.3 million tonnes, while exports to Japan surged to just over 1 million tonnes, up from 384,000 tonnes the previous year. Year-to-date, Brazil’s iron ore exports reached 324.8 million tonnes, marking a 5.7 percent increase from the same period in 2023. This robust performance has underpinned the strength in the C3 Tubarão-toQingdao route, the key benchmark for Capesize activity in the Atlantic. With just a few trading days in October as an exemption, freight rates for this route constantly outperformed last year’s levels. 

Dry Bulk Performance 

The divergence in dry bulk performance highlights the nuanced dynamics of the current market. Capesize vessels continue to thrive on the strength of Brazil-China iron ore trade, while Panamax and geared segments remain under pressure, weighed down by softer agricultural exports. As the year draws to a close, the market’s trajectory will hinge on critical factors: the persistence of robust Chinese demand for iron ore, the recovery of grain exports, and the evolving global economic and geopolitical landscape. These dynamics will not only define the short-term outlook but also influence dry bulk trends well into 2025.

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Source: Breakwave Advisors