The first four months of the year have seen 60 – 70 capesize vessels heading to the breaker’s yards, setting the scene for a record scrapping volume this year.
Speaking at the Singapore Iron Ore Forum on Thursday Joe Tobin, a market analyst with Swissmarine, said: “When you combine with the new ships we are seeing delivered fleet growth is actually slightly negative and it really changes the outlook for the rest of the year.
“We think perhaps the market is underestimating the potential that freight prices could increase,” he told the conference organised by the Singapore Exchange (SGX).
Sven Frykman, head of Asia Pacific cape desk for Cargill, also saw scrapping as a factor and commented: “As people willing are getting rid of excess capacity the system is slowly rebalancing itself, a lot more needs to be done.”
Last week has seen capesizes come off the $4,000 spot level they had been bumping along at, and Fearnelys commented in its weekly report on Wednesday that rates were up 50% week-on-week at $7,000 per day.
“We’ve seen quite a significant shift in sentiment,” said Michael Nagler, head of global freight for Noble Chartering.
“We are seeing increased demand, we’ve seen a record draw down on iron ore stocks in China.
“I think we are over the worst and in the second half of the year we will have these small blips up.”
Another factor that could cause short term peaks in rates is the fact that with the market so low both for freight and iron ore that even major charterers have stopped booking forward freight cover.
Tobin explained: “Because people have moved to fixing at the last minute, if there is any move up in the fuel price or freight price people are shorter than they would normally be, and we saw in the last week or so freight prices bounce and that shows how this market might react.
“The fact people are running which much less cover than they would normally do adds the potential for volatility and spikes.”