A rise in iron ore trade, higher steel prices and increased scrapping have been the main factors in the recent Capesize market uptick, however, according to Maritime Strategies International’s (MSI) latest Dry Bulk Freight Forecaster, the outlook is still fragile.

In order for the uptick to be sustained, the Capesize market will need to see a continuation of the nascent recovery in Chinese steel output as well as coal imports, Senior Analyst at MSI, Will Fray, said.

“With iron ore imports now contributing a dominant proportion of consumption in China of around 80-90% by month, if steel output there falters then global ore trade will suffer. In addition, the stabilisation in hitherto declining Chinese coal imports will need to be sustained; March’s imports actually increased by over 15% yoy, the first yoy increase since June 2014,” Fray said.

He further said that “better iron ore trade has been behind the uptick in Capesize freight rates” as March exports from Brazil were up 22% yoy to 35mt and Australia’s exports have gained ground year on year by a smaller margin.

“The cumulative impact of these gains, coupled with very strong Capesize scrapping in Q1 more than offsetting deliveries, has been enough to spark a limited positive freight response early in Q2,” Fray said.

On the supply-side, iron ore prices of USD 50-60/tonne are in profitable territory for the big iron ore miners and MSI believes that they will support the ramp up of new export capacity in Australia and Brazil.

On the demand side, an uptick in steel prices and steel production in China in March underpins more positive sentiment. In addition, concerns of high iron ore stockpiles in China are overplayed, MSI said, adding that at 97mt stocks are the highest since May last year but not far from the historical average and below a peak of 114mt in Q2 2014.

MSI forecasted spot rates to reach USD 8,000/day in June for the Capesize market, and almost USD 10,000/day in September.

The increase follows the latest scrapping spree of some 1.3m dwt in the Capesize fleet during March, marking the second largest monthly reduction since 2000, while deliveries of a meagre 1.1m dwt were outstripped by a disposal of 2.4m dwt.

MSI predicts that a total of 6.4m dwt and 4.6m dwt will be delivered in Q2 and Q3, respectively, saying that “although bullish, those forecasts have already accounted for significant cancellation and slippage, both of which play a role in altering the near-term delivery schedule.”