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The Capesize (180k dwt) 5 TC average rose by USD4,097 per day
week on week on 3 July 2019 at USD 23,214 per day.
Interestingly, it shows similar trend last year. Basically,
there is good recovery of iron ore shipments from Brazil and
Australia. The increase in Colombian and US coal and Guinean
bauxite fronthaul activities with the shortage of ballasters due to
relative strength of C10 over C8 rates for past few months has
lifted Atlantic market significantly.
PMXs and SMXs also continue their positive sentiment thanks to
the strong moves of the Capes market.
Iron ore prices are also going up, reaching more than USD120 per
ton (62% Fe).
Recent liquidity injection by Chinese government, positive news
from the G-20 meetings in Osaka, and steel production cut to reduce
air pollution in China boosted commodity prices sentiments and
speculative activities from traders.
Many believe current movement is driven by 'price-driven'
speculative flow rather than fundamental demand. However,
speculation itself is also part of the market. Historically,
additional speculative demand from Chinese traders has been the
main reason of the spike in the market.
Outlook
Positive: With recent poor economic
indicators, Chinese government will keep trying to stimulate its
economy. Therefore, if we see negative Chinese economic signals in
Q3, Chinese stimulus will be likely to continue to achieve above
6.0% annual GDP growth, with infrastructure investment, tax cuts,
and liquidity injection, all linked to steel demand.
Negative: Iron ore prices may eventually
decline as (1) all miners will try to increase supply to maximise
profit with current high prices, (2) more scrap and domestic ore
will be used in China, and (3) most importantly, high iron ore
prices will reduce steel production margin, and consequently steel
production is likely to decrease.
IHS Markit freight forecast models, released yesterday, predict
dry bulk freight rates to strengthen in the second half, while C5TC
models increased the view on Q4 2019, showing 'buy' signals, as
more aggressive stimulus policy is expected in China with negative
economic signals.
The Freight Rate Forecast is a data-driven and
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