Capsize Spot Rates Rally

The Capesize market posted one of the best weekly performances last week, with the average spot rate jumping 53% week-over-week, reaching a two-month high and catching a lot of market participants by surprise.

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Tightness in both the Pacific and the Atlantic basis drove spot rates higher, although there was no significant improvement in chartering activity based on spot fixtures. That is particularly encouraging as we anticipate further volume, and thus chartering activity, improvements as the winter progresses.

The Capesize market looks tight, in our view, as evident by the violent move in spot rates last week: As in every commodity market, higher volatility implies an imbalance in demand and supply, and the greater the imbalance, the stronger the price reaction.

The significant move has now woken up market participants from the lethargic market activity and narrow trading range of the last few months, and although the future progression of the market is always uncertain, we believe any correction from here will be short lived and merely a consolidation of recent gains, as near-term fundamentals look supportive of higher rates.

We believe the Capesize market can take out the summer highs sometime in the next two months, something that is not priced in the futures curve that is now backwardated in a period that historically has produced the strongest returns for Capesizes (absent the last two years that unforeseen events had a negative impact on spot rates).

Currently Capesize spot rates average about 24,000 while Panamax spot rates are around 11,000.

Source: Breakwave Advisors LLC