Asia Dry Bulk-Capesize Rates Firming on Cargo Volumes

Posted by Joseph Keefe June 2, 2016

Tough measures needed to achieve profitability -BIMCO.

Freight rates for large capesize dry cargo ships on key Asian routes are likely to hold around current levels or nudge slightly higher next week on buoyant cargo volumes, likely supported by a raft of off-market charters, ship brokers said.

"The market is plodding along - it's been a quiet week. It's not going to change massively," a Singapore-based capesize ship broker said on Thursday.

That came as capesize charter rates from Western Australia to China inched up this week, while freight rates from Brazil to China climbed to their highest since May 17, chartering data on the Reuters Eikon terminal showed.

"Charterers are slowly picking off ships. There is a lot of hidden tonnage and a lot of deals are being done under the table," the broker said.

Average earnings for a 175,000 deadweight tonne (dwt) capesize ship are currently around $5,400 per day for a voyage from Western Australia to China and $9,000 per day from Brazil to China, according to data from shipping services firm Clarkson.

That compares with a 2016 average of $2,900 per day on the Australia-China route and $7,000 for Brazil-China.

Operating costs for a capesize vessel are around $7,200 per day, according to accountancy firm Moore Stephens.

"Freight rates have found support and keep firm, mainly due to a healthy volume of cargoes out of west coast Australia," Norwegian ship broker Fearnley said on Wednesday.

"It is a slightly more positive atmosphere out there and the expectations are carefully optimistic."

With charter rates barely covering operating costs, dry cargo shipowners need to adopt tough measures to achieve profitability by the end of the decade, ship owners' lobby group BIMCO said on Tuesday.

"We need to demolish an enormous number of ships and refrain from building new ships. The medicine is not going to be easy to take," said BIMCO President Philippe Louis-Dreyfus.

Dry cargo bulk carriers totalling 20.2 million dwt have been scrapped this year, up 56 percent on an annualised basis from 30.6 million dwt in 2015, Clarkson data showed.

Freight rates for Brazil-China rose to $8.46 per tonne on Wednesday, from $7.84 last week.

Capesize charter rates for Western Australia-China climbed to $4.31 per tonne on Wednesday, against $4.05 the same day last week.

Charter rates for smaller panamax vessels for a north Pacific round-trip voyage fell to $4,378 per day on Wednesday from $4,700 a week earlier on reduced cargo volumes.

Freight rates in the Far East for smaller supramax vessels were around $5,500 per day this week, Fearnley added.

The Baltic Exchange's main sea freight index climbed to 612 on Wednesday from 605 last week.