Capesize Rates Could Face Additional Pressure This Week

Capesize rates have come under considerable pressure over the past week with forward contracts losing roughly 14% of their value over concerns on industry fundamentals.  Despite what has already been 5 consecutive days of declines for capesize rates, industry experts believe this week could bring even more downward pressure.  According to Lloyd’s List, a leading maritime and transport news terminal, plummeting demand in the capesize sector is coinciding with what is a significant amount of vessels coming of long-term charter contracts, essentially creating the perfect storm.  One Hong Kong shipbroker quoted in the report believed rates “would fall to around $35,000 per day by the middle of this week and could even fall below $30,000 per day by next Friday.”  Furthermore, there doesn’t appear to be any relief insight over the near-term as noted by a Shanghai based shipbroker, “With iron ore prices falling and inventory levels at Chinese ports at less than 72m tonnes, there does not seem much prospect of an increase in ore imports after the record levels seen in June and July.”  Iron ore inventories in China last week were reported up 240K tones to 71.2m tones, or 20% higher than the levels experienced in early June.  Those shippers who increased contract coverage to near 100%, while rates were elevated should still continue to benefit.    In addition to Chinese iron ore prices falling, steel prices have also declined, dropping almost 7% over the past week.