ECSA Watch: Tonnage tug-of-war shapes South Atlantic grain freight

Despite confidence in a balanced supply of ships in the prior week, tonnage concerns for dry bulk markets in the East Coast South America market resurfaced in the week ended May 17 due to a long list of ballasters.

This renewed apprehension contrasted with the previous bullish sentiment that was buoyed by increased activity in the Pacific and Southeast Asia, as well as support from paper trade movements cascading from the strength in the Capesize market.

East-West synergy

Activity slowed in the Pacific in the week ended May 17, with brokers reporting trading had declined.

"Charterers/operators were rating in the $16,000-$17,000 levels DOP Southeast Asia, but the market is not as attractive as last week," a shipbroker said. "No operators are willing to book business at a loss."

Last week's market boom in the Pacific alleviated tonnage concerns, as ships were engaged in shorter runs, thus fetching attractive rates.

"The Indonesia-India business and Australia round voyage were fetching good rates last week, prompting owners to opt for these shorthaul [voyages]," another broker said. "Increased Pacific activity helped absorb some tonnage, easing pressure on ECSA rates." They added. However, the source said negotiations for an Australian round trip voyage on the recent 75,000 dwt Miyama that was fixed at $17,000/d, failed.

A third shipbroker said most owners were aiming to secure charters for at least three months over the $18,000/d threshold to avoid the typically weak summer season. The source added that fixing from South China to East Coast South America at a range of $18,000-$19,000 range makes ballasting towards East Coast South America a more attractive option.

Platts, part of S&P Global Commodity Insights, last assessed freight for the 60,000 mt Santos-Qingdao DOP Singapore grain route at $47.50/mt on May 16, down $1.25. This brought time charter equivalent values -- which simulate owner earnings per day on a spot voyage -- around the low-$18,000s/d. Platts assessed freight on the Indonesia-India DOP South China coal route at $9.50/mt, down 5 cents, bringing TCEs on the route to the low $14,000s/d.

Vessel oversupply concerns resurface

"The Pacific region has helped handle some of the tonnage [last week], especially Southeast Asia and Indonesia runs," the fourth shipbroker said. "However, since Easter, the list of ballasters has been slowly growing every week."

A dry bulk analyst said there were 187 vessels east of the Cape of Good Hope open to do business in East Coast South America in the next 45 days, which is around 11.5 million mt of deadweight tonnage.

"Many owners in the South Pacific are also ballasting towards ECSA, adding pressure to the rates," a fifth shipbroker said. "Even North Pacific vessels are ballasting down."

Data from S&P Global Commodities at Seas showed there were 191 laden Kamsarmaxes in East Coast South America versus 144 ballast vessels in the week ended May 10.

Cargo conundrum

Sources had differing views on cargo flows during the week.

The dry bulk analyst said cargo volumes out of Brazil and Argentina so far this year have not been as strong as in previous years.

"In May, Brazil met 88% of the USDA projected exports. Most of the exports has already been cleared so I'm not hugely optimistic about cargo volumes," the analyst added. "There is more deadweight tonnage than cargoes, but this is a situation that can evolve. However, delays in planting and harvesting might result in a backloaded year for cargoes rather than a frontloaded one."

The second shipbroker said Brazil's production should be strong despite disruptions from recent floods. However, the broker was concerned about potential strikes in Argentina.

A shipowner was more bullish despite the ballasters heading to East Coast South America, as they expected a surge in cargoes. The owner also heard a China-based buyer may be eyeing large stems of soybeans from South America.

"With reports of better crop this season, I don't feel rates will dip," the owner added.

Fixing undercurrent

As the Capesize market was soft during the week, the Panamax market did not see much support, as strength in Capesize markets and rising Freight Forward Agreement rates in the prior week drove charterers to pay more for cargoes out of East Coast South America.

By the end of the week, low bids were indicated hovering around $17,000/d basis Singapore for large cargo stems. Charterers were aggressive with low bids, quoting rates at $46.50/mt, which is notably low.

"It seems the market has found its floor, and general sentiment is that it won't dip below the $18,000 mark," he dry bulk analyst said.

Illustrating this trend, the 82,000 dwt, 2024-built, BBG Yongjiang was open in Sunda on May 16 for an East Coasth South America fronthal run at $21,500/d.

He added that although delivery for the fixture was very prompt, the strong rate would equate to around $49.50/mt, suggesting further drops would be unlikely.

"Vessels passing through Singapore to ECSA realistically won't go much lower than $17,500 to $17,750 as Southeast Asia still fetched good rates," the fifth shipbroker said.

The fourth shipbroker said activity was subdued following holidays in Europe, with the list of ballasters growing. Charterers were holding back during the week and bidding lower amid falling FFAs, which pushed owners to reduce fixing ideas.

"With more cargoes now appearing, I believe we should find some support in the levels," they added.