IHS Markit Ltd.

10/08/2020 | Press release | Distributed by Public on 10/08/2020 08:04

Capesize 5TC Rates to Peak at Average $27,650/day in October on Tight Tonnage Supply but to Decline Afterwards, IHS Markit Says

Capesize 5TC Rates to Peak at Average $27,650/day in October on Tight Tonnage Supply but to Decline Afterwards, IHS Markit Says

IHS Markit developed 100% machine-learning driven dry bulk freight rate forecast models in agreement with the Baltic Exchange

October 08, 2020

LONDON (8 October 2020) -- The average rate of the Capesize five time-charter routes (Capesize 5TCs) is forecast to peak at $27,650/day in October but to decrease for the rest of the year, according to IHS Markit's new Dry Bulk Freight Rate Forecast. This indicates that the current market is driven by short-term positional factors.

At the start of October, Capesize (180,000 deadweight tons, carrying iron ore, coal and bauxite) time charter rate has already doubled to about $30,000/day from $15,000/day just two weeks prior, according to Baltic Exchange. Capesize rate increase is mainly driven by a robust demand recovery in iron ore from Brazil, Ukraine and Canada, and improving demand for Guinean bauxite and Indian coal. IHS Markit also observed limited ballasters to the Atlantic Basin owing to weaker Atlantic rates than Pacific figures over the past two months.

'The tight supply will support Atlantic rates in the short term,' said Daejin Lee, leading shipping analyst at IHS Markit. 'However, we now see increased tonnage heading to the Indian Ocean.'

The number of Capesize vessels heading to the west of Singapore is estimated to increase to 88 vessels in the week 41 ending on 10 October as stronger Atlantic earning attracts many tonnages out of Pacific. It is compared to 44 vessels in the week 38 ending 19 September while about 70 vessels on average this year through September.

'The improved coal cargo shipments to India would provide Capesize tonnage in the Indian ocean faster than before. Therefore, once those vessels that headed to Indian waters become available for the Atlantic Market, the freight market is expected to face adjustments, similar to what we have seen in July 2020 and in September 2019,' Lee said.

In the medium term, iron ore and coal demands are forecast to be under pressure because of import controls and environment regulations. Many countries have started announcing their winter regulation on coal consumption and on steel and metal smelters' production to tackle air pollution.

Furthermore, the spread between rates for Capesizes and Panamaxes has expanded to more than 100 percent, which is a Capesize-Panamax switching point. 'It is worth a note that many charterers are trying to cover Capesize coal cargoes with Panamaxes. We expect South African and Colombian coal shipments will start to switch to the smaller Panamax shipments first,' Lee said. Also, the recent declining congestion trend in Chinese ports would increase overall supply, especially in the Pacific, which will lead to a drop in Capesize rates.

In addition, IHS Markit economists do not foresee the recent momentum in commodity markets to be sustainable. 'With the US presidency election coming, this uncertainty would increase the risk of correction in commodity prices in the near future,' Lee said.

Dry Bulk Freight Rate Forecast

The Dry Bulk Freight Rate Forecast is the first and only forecast developed in agreement with the Baltic Exchange. Its 100% machine-learning driven weekly models provide accurate trading signals for forward freight agreement contracts up to three months, whereas its monthly models predict settlement prices of both voyage and time charter rates for up to three years. The license agreement with the Baltic Exchange allows IHS Markit to produce a forecast curve in line with Baltic Dry Bulk time charter routes and forward freight agreement (FFA) contracts.


About IHS Markit(www.ihsmarkit.com)

IHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world's leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

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