• Steady As She Goes with Strong Seasonality Supporting Current Levels – As the year draws to a close, we anticipate little cause for concern regarding an imminent correction in spot rates as strong seasonal cargo flow should support freight rates. Similarly, a significant improvement seems improbable in the absence of an unforeseen event. The Capesize market is currently exhibiting healthy, profitable rates, and the smaller size segments also indicate returns that are above their recent historical averages. The futures curve suggests a moderate softening of spot levels in the near term; however, this expected correction falls within the range of normal market volatility and does not reflect any fundamental bearishness from market participants. Looking ahead to the first quarter however, we believe expectations are elevated. The risk/reward profile may not be as attractive as required for a period that has historically been the weakest of the calendar year. Given the shipping market's short memory, where participants tend to project expectations based on the latest available data, the strong Q1 performance observed in 2025 should not be a reliable indicator for next year. Consequently, we maintain a relatively favorable outlook for dry bulk over the next few months, however, entering the new year, more substantial evidence of a tight market balance will be necessary to justify the current high expectations, levels that appear to leave little room for error.
• A Year of Two Halves as Iron Ore Imports to China Surge – The record-high iron ore imports into China for the month of September are a testament to the significant improvement in Chinese demand since early summer. Although trading was slow at the beginning of the year, the strong showing over the last several months has now brought year-to-date imports back into positive territory. This, combined with very strong growth in bauxite imports, helps explain the relative strength in Capesize spot rates. Conversely, China’s steel production is at its lowest point on a 12-month trailing basis since mid-2019. This contradiction could partially be explained by the lower quality (and Fe content) of imported material into China. This is also evident in the recent decision to downgrade the benchmark iron ore index to 61% Fe content, which will now require more raw iron ore material to produce the same quantity of steel, all else being equal. Overall, the steel market in China remains on a downward trajectory, a trend that is not directly reflected by the consistent growth in iron ore imports but is a worrisome sign long term.
• Our Long-term View – The last few years have been characterized by increased geopolitical uncertainty. Going forward, we expect such events to continue to affect global trade and have a meaningful impact on effective vessel supply. Combined with the potential for a multi-year cyclical rebound in China’s economic activity following the recent economic turmoil, dry bulk shipping should experience higher volatility on top of a secular tightness driven by stable bulk commodity demand and a slower fleet growth owing to a relatively low orderbook.
Subscribe: