Capesize bulker spot rates keep rising amid tight supply and China's high iron-ore demand, but they may start collapsing amid growing shipping costs, according to an analyst.
The capesize 5TC, a spot-rate average weighted across five key routes, improved 4.6% on Tuesday to $56,269 per day, continuing an upward trend from $40,518 per day on 8 September.
These elevated rates may not last, however, because they have led to costlier transportation costs for iron ore while prices for the commodity have fallen, BTIG analyst Greg Lewis said.
"These two factors have the potential to force an air pocket in the seaborne iron ore market, which should weigh down cape rates into early next year," he wrote in a note on Tuesday.
The rates, which have benefitted from Southeast Asia's typhoon season pushing boxed goods onto bulkers, port congestion and firm demand, may also decline with the February approach of the Chinese New Year and Beijing Olympics, he said.
"Iron ore transportation costs as a percentage of the cost of iron ore have shot up to about 25% to 30%, as Chinese iron ore prices have dropped 45% since July, while cape spot prices are the highest they have been since the super-cycle of 2008," he wrote.
Brazilian miners as a result see much lower profits from the commodity, which is now selling for $115 per tonne, he said.
BTIG lowered its rating on Diana Shipping to neutral from sell, meaning it does not expect the stock to appreciate or depreciate meaningfully over the next year.
