Capesize: the Dry Bulk dragon roaring and soaring into 2024

The Dry Bulk market has been strengthening since the state of the year. The increase has been led by massive gains in the Capesize, which typically transport 150,000-ton cargoes such as iron ore, bauxite, and coal. After the Lunar New Year of the Dragon celebration the Capesize owners have their own reasons to celebrate with spot rates at 15-year highs.

The Baltic Exchange Capesize 5 Time Charter Average Index was on Monday 4 March increased by $1,888 to reach $34,873. The C5 index stands at more than double compared to last year, as strong Atlantic fronthaul volumes supported cargo demand. A strong year-on-year upside of iron ore from ECSA (Brazil) and bauxite from West Africa (Guinea). A healthy steel market in China running at overcapacity and in the rest-of-world has supported the iron ore trades especially in comparison with last year’s weak start. A return of Ukrainian iron ore and Colombian coal to the Far East Region add icing to the cake.

Capesize market started the year near $30,000 per day before dropping by half at mid-January. Freight futures have now already priced-in such a scenario with the next year now showing an above $20,000 mark on Capesize vessels for the rest of the year.

This time of the year is traditionally the low point; however, the Atlantic market is the main driver of the stellar performance. There is support from a pull on the supply-side with a notable inadequate vessel supply in the Atlantic basin. After a dislocation for ballasting tonnage following the disruptions in the Red Sea and in conjunction with the Panama Canal draught is affecting transit capacity between the basins, leading to the now months’ long vessel shortage in Atlantic. The supply crunch combined with the overall optimism across shipping segments highlights that the spot market ought to remain strong for a long period of time.

In turn, the Baltic Exchange’s dry bulk sea freight index (BDI) has since the start of the year climbed 94 points (4.3%) on 5 March at 2,297 points, its highest since December 15th. The index, which factors in rates for Capesize, Panamax and Supramax shipping vessels, has rocketed up as climbing rates across all vessel segments pushed prices higher. However, the upside in the geared assets, S10 TC & HS7 TC, had been a relative laggard. A 75% improvement in rates for C5 year-on-year, as opposed to a 31% increment for HS7TC.

On the forward freight agreements, a lot can be said about the fundamental supply and demand balance, with limited outlook for spot market weaknesses and strong bids across all durations. As of 13 February, March closed at $21,064 which at that point represented 700 points increase week-on-week, and an 8,000-jump month-on-month.

In sum, the strength in the Capes has helped the Baltic Exchange’s Baltic Dry Index stage a recovery with the headline indicator strengthening 14% month-on-month on the back of momentum from the Capesize segment.