Bulk carrier demand surges
With investors closely watching the iron ore price for any signs of seasonal weakness, attention has turned to an index that measures demand for capesize vessels, which has almost tripled since June, and this week reached its highest point in 21 months.
Capesize vessels carry bulk commodities such as iron ore, coal and grain, and are so called because they are too large to navigate the Suez and Panama canals, and therefore must round either the Cape of Good Hope in South Africa, or Cape Horn in South America, to traverse the globe.
The recent spike in demand for the vessels is almost certainly linked to the increase in iron ore production that is coming out of the Pilbara, where Fortescue Metals, Rio Tinto and BHP Billiton are all ramping up exports, and doing so faster than expected in the case of the latter two.
UBS commodities analyst Tom Price said the shipping data was a genuine indicator that trade flows had improved in recent weeks.
"There are new iron ore tonnes coming into the market, you've got Rio and Fortescue delivering their new tonnes into the market and they are spot tonnes," he said.
"When you have an influx of new spot tonnes coming into the market, that tends to support these freight rates."
When combined with the 5 per cent slide in iron ore prices over the past three weeks, Mr Price said there were indications that "a surplus was forming" in the seaborne iron ore market. The benchmark iron ore price was fetching a seasonally strong $US135 per tonne on Wednesday, down from $US142 three weeks ago.
Analysts at CIMB, Barclays and UBS are all predicting further weakness in the iron ore price over the next couple of months, as Chinese steel mills begin their seasonal easing of production rates.
This time last year iron ore had momentarily crashed to just $US86 per tonne, in a shift that shocked the industry.
But the various indicators do not seem to be weighing on investor sentiment towards Australia's iron ore exporters, with shares in the likes of Fortescue, Rio and Atlas Iron all rising steadily over the past two weeks. At $4.80, Fortescue shares are now at their highest since February 22, and well above the $2.99 the stock tested this time last year at the nadir of the iron ore price crash.
Iron ore bulls argue that the price will not repeat that crash because stockpiles in China are low.
Frequently Asked Questions about this Article…
The surge in demand for capesize vessels is being driven by rising Australian iron ore exports from the Pilbara, where Fortescue Metals, Rio Tinto and BHP Billiton are ramping up shipments. An index that measures capesize demand has almost tripled since June and reached its highest level in 21 months, reflecting stronger trade flows for bulk commodities such as iron ore, coal and grain.
Increased demand and an influx of new spot tonnes from miners like Rio and Fortescue tend to support freight rates, according to UBS commodities analyst Tom Price. Shipping data showing higher capesize usage is a genuine indicator that trade flows have improved, which can push freight rates higher and signal changing supply dynamics to investors.
Yes. The benchmark iron ore price has slipped about 5% over the past three weeks, trading around US$135 per tonne (down from US$142 three weeks earlier). Analysts at CIMB, Barclays and UBS expect further near‑term weakness as Chinese steel mills begin their seasonal easing of production.
There are indications a surplus may be forming. UBS analyst Tom Price noted that new spot tonnes coming into the market are supporting freight rates but, combined with a recent price slide, point to signs that a seaborne iron ore surplus could be developing.
Investor sentiment toward major Australian exporters appears resilient: shares in Fortescue, Rio and Atlas Iron have risen steadily over the past two weeks. Fortescue shares, for example, were trading at A$4.80 — their highest since February 22 and well above the A$2.99 level seen during last year’s price crash.
Pilbara production ramp‑ups matter because they add new spot tonnes to global trade, which can support freight rates and change supply balances. For investors, faster‑than‑expected output increases from miners like Fortescue, Rio and BHP signal stronger export activity that affects both shipping indicators and iron ore market dynamics.
While last year’s price briefly fell to around US$86 per tonne, some iron ore bulls argue a repeat crash is unlikely because Chinese stockpiles are currently low. However, multiple analysts still expect some near‑term price weakness as seasonal demand eases, so investors should watch supply, shipping flows and Chinese mill activity closely.
Analysts at CIMB, Barclays and UBS predict further weakness in iron ore prices over the next couple of months due to seasonal production easing in Chinese steel mills. At the same time, shipping indicators—like the capesize demand index that has nearly tripled since June—show improved trade flows, so the near‑term picture is one of stronger shipping demand but some downward pressure on prices.
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