The Dry Bulk Weekly Review in Shipfix Data
The freight rates for the Capesizes have experienced significant volatility over the past few weeks as they retreated from the highs in early December. Shipfix’s forward-looking data sets provide insights into the recent developments, with demand for seaborne for coal and market lead times partially responsible for the changeable conditions. Additionally, the data highlights the mixed fortunes for the main basins.
Volatility Ahead for the Capesizes
After a drop of more than 30 per cent for the Baltic Exchange’s Capesize Index during the week before last, the past week’s decline was more modest at 3.4 per cent. Still, the limited loss obscured considerable volatility over the past week. Monday and Tuesday saw robust gains for the gauge, but the second half of the week delivered performances in the red, which more than offset the promising start.
A recovery in demand for seaborne transportation in the Atlantic basin contributed to the gains during the early parts of the past week. Aggregate cargo order volumes for the first two days in the basin matched those of recent weeks. However, the other major basins showed considerable weakness over the past five sessions.
The recent mixed developments for tonnage supply across the basins also carried into the past week. While the tonnage supply situation improved in the Atlantic in recent weeks and contributed to the significant decline in freight rates, the past week has seen a renewed downward pressure on the number of vessels available. Similarly, tonnage supply in the Indian and Pacific Oceans remained subdued compared to recent weeks. However, the tonnage supply in the Pacific recovered somewhat after a dip.
The mixed picture across the major basins suggests that the short term will be dominated by volatility. The improved demand in the Atlantic, combined with softer supply, is a positive for freight rates, but the weak cargo order volumes in the other basins are likely to be an offset.
Lower Cargo Orders for Coal Adding to Freight Volatility
Coal prices have faced headwinds since the early parts of December, with the January Newcastle trading around eight per cent below the high for the month. Despite the Northern Hemisphere being in the middle of the heating session, prices have come under pressure amid well-stocked inventories and a robust seaborne flow of the commodity.
Rising demand for seaborne transportation of coal contributed to the spectacular gains for the index during November. Weekly spot cargo order volumes for the fossil fuel increased by 230 per cent between the middle of October and late November, reaching 3.7 million tonnes globally. However, demand over the past three weeks has come off sharply. During the last week of November, global demand was around 2.3 million tonnes, a 37 per cent drop compared to a fortnight earlier. Since then, global demand for seaborne transportation of coal has recovered but remains well below the recent high.
At the same time as spot demand for transportation of coal onboard Capesizes has shown weakness, cargo order volumes for other commodities have remained robust and offset some of the negatives associated with coal. However, the weakness in demand for shipments of coal will likely add to the headwinds and volatility that the Capesizes are facing in the short term.
Increasing Market Lead Time in the Atlantic Contributed to Recent Headwinds
Despite some healthy gains on Monday and Tuesday and robust global cargo order volumes, the Baltic Exchange’s gauge for the Capesizes remained in the red for a second consecutive week. Still, the weekly loss of 3.4 per cent was a far cry from the 32 per cent shed during the preceding week, and the index remained nearly twice as high as a year ago.
Last week’s loss came despite a recovery in cargo order volumes. The rebound was especially strong in the Atlantic, where the weekly aggregate reached 5.4 million tonnes. At the same time, tonnage supply in the basin continued to trend lower. However, the Pacific experienced the opposite development, with a squeeze on demand while the number of available vessels increased.
An increase in market lead times can explain the contradicting development of rising global demand and a retreat for the Capesizes’ freight indicator. The average time between the first date of circulation of orders and the first loading date has risen significantly in the Atlantic since the end of November. Such a development is usually unfavourable for freight rates, as it indicates that imminent demand is weakening. A similar development was also evident during October, ahead of a period of relative weakness for the Capesizes in November.
The market lead time in the Atlantic basin has been trending higher throughout the first half of December, but the end of last week saw the measure losing its upward momentum. While it is still too early to speak of a shift in the trend, should the lead time continue to decline, it would indicate that the Capesizes will enjoy a solid start to the new year.
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