As China emerged from a Labour Day Bank Holiday, thermal coal opened up 5%, soybean oil opened up 4%, and dalian soy meal was up 2%. Container throughput at major points was also 18% higher year-on-year.
Iron ore, coal, grain, lumber and steels are either at record highs, decade highs or multi-year highs.
Economies around the world are enjoying such high prices, and for ship owners, the market has all the hallmarks of what we witnessed in the 2000’s freight market super cycle.
With freight, a ship is just an empty taxi waiting for a fare. So, understanding what drives the freight market is understanding the supply and demand factors behind the major seaborne commodities. Chief amongst these are Iron ore, coal, grains and steels. Like all these commodities, the freight market is similarly experiencing a stellar year.
In the charts above, the Baltic Daily Index (BDI) is similar to that of the 2005-09 super cycle, and already, earnings are set to reach a 12-year high. The BDI has just broken a key level of 3250. Importantly, it’s made a move through this level three times since records commenced in 1985. In Aug’03, it spent two years above this level. The case was the same in Jul’06.
If we look at the Baltic Freight Futures Indices, we get some sense of how extraordinary 2021 has been and will likely end up. The 10-year Capesize long term average is at $13,385. Taking the year-to-date figure and adding the forward curve values, we arrive at a 2021 performance of $29,829. Similarly, the Panamax 10-year average is at $10,791. Using year-todate actuals and the 2021 futures curve, we arrive at $20,852.
So, the Capesize market could end up eclipsing its 10-year average in 2021 by almost 220%, whilst Panamax is almost doubling its 10-year historical average.
However, the astounding message for the market is in the forward 2022 and 2023 markets. The futures curve tells us that, for Capesize, 2022 will already be double the 10-year average and 2023 50% higher. And, whilst Panamax ‘only’ shows a 50% premium above its 10-year average for 2022, 2023 looks set to be at least 30% greater than the 10-year long term average.
2021 will already set a 12-year performance record for freight. We’re now left wondering how high this market will go and will we continue to follow the 2005-09 rally? Only time will tell, but as each day passes, the Open Interest increases, and the bull market rally gathers more and more pace.
This rally could have a long way to run yet.
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