Freight prices have risen steadily for
almost two years, chipping away at margins for the industrial
mineral trade. But with plenty of vessels available, the sector
is unlikely to see the cost of shipping rise much further in
the year to come, shipping consultants have told Industrial
The Baltic Dry Index, which measures
global prices for the shipping of bulk commodities, hit a low
of 290 points in February of 2016 after coming under pressure
from the seasonal lull during the Chinese New Year, which
brings much shipping activity in China to a halt.
Prices have ticked up gradually since
then, rising to 961 points by the end of 2016 and hitting 1,366
points by the end of 2017, but prices are still well below
their historical peak of 11,793 points in May 2008.
"It’s been good times for the
shippers of industrial minerals," Peter Malpas, at transport
group Braemar Shipping Services told Industrial Minerals.
"March 2016 saw a real low period, really
across all sizes, but particularly on large capesize vessels,"
he said, adding, "the handysizes were less impacted, but were
still well below operation cost levels."
Handysizes are mid-sized bulk carriers,
which transport most industrial minerals.
"We’ve had that period of
recovery," Malpas said, adding that in 2018, "the recovery will
still be evident...what we are not expecting is a significant
increase in rates beyond what we currently see."
"2016 was an extremely bad year, and so
 looks good, comparatively speaking," Basil Karatzas,
chief executive of New York-based Karatzas Marine Advisors
& Co. said, adding, "however, the question is whether this
trend is sustainable."
Increase in demand, especially for
The demand picture for freight is mixed,
with a modest global economic uptick looking positive for
demand. But the mineral sector has been hit by the Chinese
government's crackdown on pollution, which is reducing heavy
industrial activity there.
Chinese pollution controls, however, are
helping to support demand for capesizes, the largest bulk
carriers, which are used to transport iron ore, Malpas
"The anti-pollution measures put in a
greater focus on higher grade iron ores," Malpas said, because
higher grade ore requires less energy to process.
The focus on ore quality is driving demand
away from local supplies and from Australian imports, and
toward Brazilian ore, increasing the distance ore consumed in
China has to travel, and tying up capesize capacity.
"This is having a great bearing on
capesizes," Malpas said.
The main downward pressure on shipping
rates is that vessel availability has remained strong, due to
recovering prices easing the pace at which ageing vessels were
The low prices of freight in 2016 meant
that shipowners were facing losses.
"Handysize average rates were as low as
$2,900 per day," Malpas said, adding, "operating costs were
$4,500… that doesn’t take into account any
But returns have risen since then. "By the
end of 2017 we were looking at the average rate being
$9,000 per day," he said.
"In 2017 you saw significantly less
scrapping [of ships]. As the recovery was evident, the
incentive to scrap was dissolved and they could start to make
some profits. Enough to keep the ships away from the
This has helped maintain ship
availability, which is also being bolstered by a delay in the
enforcement of new environmental rules.
"What we were initially anticipating
was the ballast water regulation coming into effect in late
2017 and, playing out over a four year period, we would see
significant numbers of middle-aged ships scrapped," Malpas
But in July 2017 the International
Maritime Organisation pushed back the requirement for ships to
comply with new ballast water management rules. The rules,
which were designed to prevent ships from dumping untreated
ballast water and potentially disrupting local ecosystems, will
now come into force from 2019, two years later than previously
"That is going to delay the need to scrap
the middle-aged ships," Malpas said, allowing for tonnage to
continue to see "modest" growth.
Karatzes also saw vessel availability as
ample. "In general, demand has been growing, overall, because
world economies are growing," he said, adding, "but fortunately
for the cargo shippers, it’s an oversupplied
"In 2017 the freight market may improve a
little bit, but it’s a market in favour of the
charterers and not the ship owners," he said.