Capesize iron ore freight rates trended down Friday in a quiet and bearish market as few cargos were seen out of both West Australia and Brazil, and the paper market remained steeply backwardated.
Platts assessed the Capesize iron ore freight rate at $10.75/wmt on the West Australia to Qingdao route Friday, down 50 cents from Thursday and also down $1.75/wmt on the week.
There was unconfirmed talk of vessels being offered at around $11/wmt but fixture activity was weak with few cargoes seen in the market in the wake of Cyclone Christine earlier this week.
Market activity is expected to intensify next week as more market participants return from their year-end holidays, but the market is also braced for more bad weather.
"There will perhaps be more inquiries out of West Australia next week," a Chinese trading source said.
Although North Chinese ports still face some congestion, an expanding tonnage list out of West Australia is expected to pressure freight rates on this route next week.
Market sources point to a steeply backwardated paper market weighing on sentiment in the physical market.
Earnings for vessels are presently at about $35,000/day while forward freight agreements were seen trading at about $21,000/mt for January, a Singapore-based ship operator noted. "The market is definitely headed down," he said.
A similar lack of cargoes out of Brazil is seen pressuring Capesize freight rates in the region, market sources said.
Platts assessed the Capesize iron ore freight rate at $26.75/wmt on the Brazil to Qingdao route Friday, down $1/wmt from Thursday and also down $2.75/wmt from the previous week.
Some market participants expected freight rates on this route to trend down to the mid-$20s/wmt next week given the lack of cargoes from miner Vale which declared force majeure on some shipments last weekend.
But some other sources noted shipowners were still seeking rates of close to $29/wmt on the route and believed owners were unlikely to accept much lower rates, especially as the route still had tight tonnage with few ballasters.
"It is a case of very little tonnage versus very few cargoes (ex-Brazil)," a Chinese shipowner said, adding it was difficult to say which way the market would move next week.
Capesize freight rates also trended down on the Saldanha Bay to Qingdao route, ending the week at $17.75/wmt Friday, down 50 cents from Thursday and also down $1.25/wmt from the previous week.
There was talk in the market of a fixture being negotiated for shipment of 130,000 mt plus/minus 10% of thermal coal from South Africa's Richards Bay coal terminal to China's Rizhao or Fangcheng for January 25-February 10 laycan.
Owners' rates were seen at $15.50-16/mt and charterers' rates were seen at $14-14.50/mt for this cargo, an India-based shipbroker said.
AUSTRALIAN CARGOES
Despite a bleak outlook for the market during the wet season in January, expansions underway at Australian iron ore mines bode well for the Capesize freight market this year, several sources said.
An analyst with a Singapore-based chartering house estimated that 2013 witnessed iron ore export shipments out of West Australia rising by about 70-80 million mt from the year before, adding that similar additional volumes could be expected in 2014.
"The pace of additional (vessel) deliveries will be relatively slower in 2014," the analyst added.
As more ships are employed out of West Australia, charterers in Brazil and Saldanha Bay would be closely monitoring the number of ballasters headed their way.
"The number of ballasters (towards Brazil and South Africa) would pretty much decide how tight the market is there," the analyst said, but added that any significant jumps in freight rates out of Brazil could also lure more ballasters westwards and tighten tonnage in the southern hemisphere.
"It all depends on whether all the miners are in the market at the same time. It also depends on which charterer moves first (to secure vessels)," he said.
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