The Baltic Exchange`s C5 West Australia-Qingdao index hit $13.86/mt on September 24, compared with $9.55/mt at the start of the month, pushing the BDI above 2,000 points for the first time since late 2011, shipbroker SSY said.
"Consequently, market sentiment as expressed by physical period rates has improved dramatically. The one-year period market for Capes is now around $21,000/day, having labored below $12,000/day for much of the year," a London-based SSY analyst said in an email.
Platts` Australia-China netback for Capesize vessels basis 62% Fe fines rose 31% over September from $9.50/wet mt on September 4 to $12.50/wmt on September 30.
A Perth-based analyst for shipbroker Braemar Seascope said iron ore inventories in China had been run down to "worryingly" low levels in recent months, triggering restocking that had caused the recent spike in Capesize rates. Port stocks in China were under 70 million mt on September 20 compared with 105 million mt a year earlier.
The Braemar analyst said rates were being driven by increased demand from China facilitated by the increased supply capacity from major Western Australia miners.
"China usually restocks in the fourth quarter; it`s just come earlier this year. Freight rates could tail off from the recent peaks before December if restocking slows," he said.
Heightened buying activity has also been evidenced by vessel queue waiting times at Chinese ports rising to around 3.5 days towards the end of September, from one or two days, depending on the port, at the start of the month.
Some commodity analysts spoke of "traders rushing to fix cargoes" in a suddenly much more competitive freight market.
In a September 12 research note, CIMB analysts said Capesize rates would stay high "as long as Chinese iron ore restocking continues."
"Once that process is done [they] may drop as quickly as they had risen," the analysts added.
SSY said the availability of iron ore cargoes from Brazil had played a key role in lifting the Capesize market, "with around 70% shipped long-haul to destinations in Asia."
"Seasonal increases in iron ore supply from Brazil in the second half of the calendar year have boosted rates in the fourth quarters of both 2011 and 2012. This seasonal influence has been supplemented by rapid growth in Australian iron ore exports. We expect seaborne iron ore trade to show an annual gain of over 7% in 2013," the shipbroker said.
SSY pointed out that the initial rate of increase in Capesize earnings was also a "reflection of widespread slow steaming" -- whereby vessels travel at a slower speed to increase fuel efficiency -- across the fleet, "which would have absorbed much excess capacity."
"Under current market conditions, however, there are reports that some vessels have speeded up. Indeed, faster steaming and reduced shipowner interest in demolition will both effectively increase carrying capacity in the Capesize fleet," the SSY analyst said.
The Braemar analyst said the rate of new Capes coming online had fallen after a big increase in the past few years.
This article first appeared in the October issue of Platts Steel Raw Materials Monthly.