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A sequential decline in August iron ore export volumes from
Brazil is at odds with Capesize freight rates surging to a six-year
high in recent weeks. Ship owners' actions with respect to IMO 2020
preparations is creating an artificial supply tightening and
driving freight markets, in our view.
IHS Markit Commodities at Sea
data shows Capesize demand benefitting amid an increasing number of
Capesize departures from Brazil at the expense of VLOCs.
We observed 163 Capesize departures in August 2019 vs YTD
average of 115, while VLOC departures dipped to 29 in August vs YTD
average of 37.
Scrubber retrofitting activities in the Pacific have resulted in
a shortage of VLOCs in the Atlantic which in our view explains the
increased spot Capesize shipments in Brazil over the last two
months (July-August 2019).
Moreover, with increased spot iron ore chartering out of Brazil,
the tight tonnage in the Atlantic basin led to the Atlantic
round-voyage rate reaching its highest level since January 2014 at
$41,435/day. However, the Pacific round voyage rate from Australia
to China experienced comparatively modest gains, reaching
$34,108/day, as many vessels remain in the Pacific to prepare for
the IMO 2020 regulation.
Brazil will maximise iron ore exports for the rest of the
year
Capesize retrofitting activities continues with 3-4% of fleet
offline
The number of ballasters to the Atlantic will be limited as
many shipowners prefer to stay in the Pacific to prepare for IMO
2020 regulations including scrubber retrofitting activities in Asia
and bunker tanker cleaning and testing etc, which is expected to
support freight rates with an inefficient fleet in the
short-term
Downside risk from China's coal import control, competition
from Panamax and recovery in supply remains
Posted 19 September 2019 by Daejin Lee, Consulting Principal, Maritime & Trade, IHS Markit and
Rahul Kapoor, Vice President, Head of Research & Analytics Maritime & Trade, IHS Markit
