Even though the steelmaking process is moving from the blast furnace route, dependent on iron ore, to the electric arc furnace route, reliant on ferrous scrap, the limited availability of recycled metal will continue to support the iron ore trade. Additionally, strong bauxite trade on Capesizes and a low order book compared to an aging fleet will likely sustain the Capesize charter market in the long term, reports Drewry.
Steelmaking Processes
There are two prominent processes for making steel:
- Blast Furnace (BF):
- Uses raw materials such as iron ore and coking coal.
- Iron ores are first reduced to iron, known as hot metal or pig iron, which is then converted into steel in the basic oxygen furnace.
- Electric Arc Furnace (EAF):
- Uses steel scrap to make finished steel.
The steel industry is transitioning from the blast furnace route to the electric arc furnace route. However, due to the limited availability of recycled metal, iron ore usage will remain high. Therefore, any decline in iron ore trade due to this technological shift is unlikely soon, supporting Capesize employment.
Scrap Metal Availability
Despite global crude steel production reaching the one-billion tonne mark in 2004, ferrous scrap availability is inadequate due to the long life cycles of steel products, often spanning several decades. According to Worldsteel, the average lifetime of a steel product is around 40 years, creating a long time lag before recycling can occur. Steel demand is growing faster than the supply of scrap generated from the existing pool of ‘steel in use.’
The global availability of end-of-life scrap is projected to increase to around 600 million tonnes by 2030 and approximately 900 million tonnes by 2050—an increase of over 300 million tonnes in 20 years. This equates to an addition of 15 million tonnes of scrap annually, while steel demand is expected to grow by 50-60 million tonnes during the same period, necessitating more iron ore. Until scrap-based production becomes widely available, iron ore demand will remain high, supporting Capesize earnings.
Bauxite Trade and Capesize Demand
The share of bauxite trade in Capesize employment has increased significantly over recent years due to the expansion in demand for aluminum products in China. Aluminum is increasingly used in renewable energy applications, such as solar panels, wind turbines, turbine blades, structural supports in hydroelectric power, advanced battery technologies, and electric vehicles (EVs).
The use of Capesize vessels will further strengthen with the rising use of lighter, versatile, and corrosion-free aluminum products in China’s infrastructure sector, driving a surge in bauxite demand. Bauxite is primarily shipped on Capesizes on the Guinea-China route. In April, for a brief period, the bauxite trade on the Guinea-China route replaced the Brazil-China trade as the second largest employer of Capesizes after the Australia-China route. This phenomenon is likely to occur more frequently in the coming years.
Capesize Supply and Market Tightness
The Capesize supply will contract as nearly 8% of the fleet is over 18 years old, and these vessels could be demolished over the next two to three years as they surpass 20 years of age. Meanwhile, the order book accounts for less than 6.5% of the fleet, insufficient to replace the aging vessels. These vessels might continue operating past their fourth Special Survey under normal circumstances. However, tightening regulations and the need to comply with carbon-emission norms will push older tonnages out of operations sooner, making it economically unviable for these aged vessels to operate long-term without incurring extra compliance costs.
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Source: Drewry
