Pacific fixtures stoke capesize fire.
Iron ore spot market surges along with rush to charter vessels.
Traders have bet that the price of iron ore and capesize freight rates will spike sharply in the next two weeks as nearby derivatives contracts recorded large gains on Friday.
Brokers attributed the surge to panic-buying of iron ore in the underlying physical spot market and a corresponding rush to charter ships before higher contract prices are fixed from April 1.
Second-quarter iron ore swaps contracts were trading as high as $134.35 on Friday, gaining nearly $3 in one day. The rate was just short of their all-time high value of $134.50, according to Michael Gaylard at derivatives broker Freight Investor Services.
The price is settled against The Steel Index physical price of landed cost of iron ore delivered to China, which has averaged $132.70 this month.
Capesize March contracts traded as high as $41,000, up 11.6% on the week, although second-quarter contracts rose only 2.4% to $32,250 per day.
Fuelling the activity was news that the the world"s largest iron ore producer Vale wants to move to quarterly pricing, as well as to double its iron ore contract price.
The average capesize time charter rate gained 12.2% in one day and closed on Friday with a massive $10,000 per day hike on the Pacific round voyage route, shipping iron ore from Australia to China.
Australian miner BHP Billiton stoked the capesize market with a blizzard of late March cargoes last week, although some brokers were unsure whether the resurgence in rates after the chartering frenzy caused would continue.
?Mills are already paying spot rates for iron ore which are already more than $100 per tonne, so the relative price increase between what mills are now paying and could pay may not be that great,? said one Hong Kong-based broker.
?There has been a definite increase in fixing activity over the past couple of weeks, which has put buoyancy into rates, but we are not sure how sustainable this will be.?
A Singapore-based broker also pointed to the fragility of the rates recovery: ?Any rate increases are not going to be sustainable if the market relies on just one or two major players fixing ships.?
The broker thought that the market was still overtonnaged, with around 60 vessels coming free by the end of this month.
He reiterated that some owners were still greedy and pushing for higher rates but said that charterers were resisting owners demands. By comparison, he said charter rates for a voyage from Brazil to China were nudging $30 per tonne following a spate of fixtures by charterers.
These included Cargill, which took the 2009-built, 180,000 dwt Navios Happiness at $29 per tonne for a voyage from Tubarao to Qingdao.
Brokers said a mismatch was developing between longhaul spot and period charter rates and they wondered how this would play out.
?Period rates for an 11-13-month charter are around the same level as a spot voyage from Brazil to China. Either the spot or period market is overvalued. Given current FFA levels, it is probably the latter,? said the Hong Kong-based broker.
India-China supramax FFA trading begins
THE first forward freight agreement traded on the new Baltic Exchange supramax route from India to China has been concluded between Morgan Stanley and Cargill International, writes Michelle Wiese Bockmann.
The third-quarter contract will be settled against the new estimated spot voyage assessment that the Baltic began publishing in March 8.
The dollar-per-tonne freight rate derived from the time charter rate helps break down the freight component of the landed price for iron ore sold on the spot market and shipped from India to China.
The trade was brokered by Freight Investor Services. The delivered price of iron ore closed on Friday at $133.70, of which the supramax freight rate on the India to China route was $25.84.