July’s Capesize Market: Glass Half-Full or Half-Empty?


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By Derek Langston, Head of SSY Consultancy & Research

 

July’s Capesize market can be described in two very different ways.

On the one hand, it was the highest Capesize TC average for any July of the past 12 years (after adjustment for changes to index type), reaching $30,395/day, providing yet another example of the extraordinary freight market performance of 2021.

On the other hand, it also represented the weakest July relative to Panamaxes since the Baltic Exchange introduced assessments for 82.5k dwt vessels in late 2017, with a Cape/Panamax average earnings ratio of 0.90 showing a Cape discount to the smaller size.

While most freight market charts for 2021 show a break with recent levels, the Capesize-180/ Panamax-82 average earnings ratio followed a remarkably similar path to previous years for most of the 1h21 (see below) apparently reflecting the seasonal downturn in iron ore availability on arterial Capesize trades.

It was only June and July, however, that the ratio deviated from the trends of previous years. Instead of jumping to year-to-date highs as per the last three years, the Cape 5 TCs laboured around or below parity with their Panamax equivalent.

 

 

There are of course a multitude of drivers at play in both sectors, ranging from iron ore cargo availability in Brazil (although the 3q has been the strongest quarter for exports in each of the past three years, July exports slipped below the year-ago level) to respective levels of port congestion involving Panamaxes and Capes in China, grain trade seasonality, Chinese coal market dynamics, the start of the ice-free window for iron ore shipments from Baffin Island, notwithstanding the underlying relative strength of geared bulkers to larger sizes this year.

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