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Capesize Ship Rents May More Than Double, Dahlman Predicts

The cost of hiring capesize ships that haul iron ore and coal may more than double in the next few weeks.

Capesize Ship Rents May More Than Double, Dahlman Predicts
18 August 2011 - 22:02

The cost of hiring capesize ships that haul iron ore and coal may more than double in the next few weeks, Omar Nokta, a New York-based analyst at Dahlman Rose & Co., said in a report today.

Daily rents for the ships, up 34 percent in August, may rise to $33,000, Nokta said. Hire costs today climbed 5.5 percent to $12,607 a day, according to the London-based Baltic Exchange, which assesses freight rates on maritime routes.

Iron ore from Australia and Brazil costs less than the steelmaking ingredient produced in China for the first time this year, boosting shipments and driving up rents, according to Nokta. Still, capesize hire costs have averaged $9,145 a day so far this year, less than a third of the figure for all of 2010, data compiled by Bloomberg shows.

“The stage is set for a rebound for at least the next several weeks,” Nokta said. “Charter rates can improve materially in the short run to last year’s averages in the coming weeks.”

Capesizes are the biggest vessels tracked by the Baltic Dry Index, a broader measure of commodity shipping costs. It rose for a sixth session, gaining 2 percent to 1,371, according to the exchange.

Higher domestic ore and steel prices in China, the world’s largest steel producer, combined with improved profits for producers to influence short-term dry-bulk rates, according to Nokta.

Steel Importance

The global steel industry is the single most important influence in dry-bulk shipping, with ore, coking coal and steel products accounting for 51 percent of seaborne trade, estimated at 3.56 billion metric tons for 2011, according to DVB Bank SE, a German transportation lender.

Forward freight agreements that traders use to bet on, or hedge, the cost of hiring capesizes for September were trading at about $13,200 as of 4:26 p.m. in London, according to data from Clarkson Securities Ltd., a unit of the world’s largest shipbroker.

Australian ore shipments will reach 10 million tons for the week ending Aug. 19, two million tons higher than the week ending July 30, according to ICAP Shipping International Ltd, a unit of ICAP Plc.

“That’s why rates are reacting; it’s pretty good news for the spot market,” GeorgiSlavov, the unit’s head of dry freight and base resources said in an interview.

Rents for panamax ships, the largest that can transit the Panama canal, are climbing as numbers of the vessels available for hire over the next 15-day period fall as coal and ore cargos rise, according to Slavov.

Panamax Numbers

There were 145 panamaxes for hire in the Pacific trading region over a 15-day period, down from between 210 and 226 that were available between July 10 and July 15, Slavov said.

The average panamax rate gained 1.1 percent to $12,674 a day, the highest since July 14, data from the Baltic Exchange show. Supramax vessels, about 25 percent smaller than panamaxes, gained 1.1 percent to $13,555 a day, according to the exchange. The cost to hire handysize vessels, the smallest tracked by the gauge, was 0.2 percent higher at $9,494 a day.
 

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