Short-term dry bulk carrier rents fluctuate

According to Banskowicz, chairman of the Singapore-based Iron Ore and Steel Derivatives Association (IOSDA), the transfer of iron ore prices to a quarterly adjustment mechanism has made dry bulk ship charters more in need of short-term chartering. In terms of contracts, rents are more volatile than before, of which the Capesize market is the most affected.

Relative to previous full-year pricing contracts, most of the current iron ore buyers have accepted and adopted quarterly pricing mechanisms. Banskowicz believes that the price of iron ore is changing faster than before, and buyers need to be more agile to respond to market changes in short-term rental contracts, plus more buyers to participate in iron ore futures contracts. These two factors Both will indirectly affect the level of spot rental of dry bulk carriers, making rents more repeatable.

Banskovitz said that before the emergence of the quarterly iron ore pricing mechanism, more than 90% of the iron ore on the market was priced through the full-year contract. Currently, only 60% to 70% of the iron ore is priced on a quarterly basis. All are trading at spot prices. Most of the iron ore traded at the spot price is from India. It can be seen that the change in spot iron ore price has a greater impact on the ship market than before.

He pointed out that given the contract price of iron ore varies from quarter to quarter, the demand for ships is more dependent on the spot price, which is causing more buyers to choose to sign short-term freight contracts at the beginning of the quarter. The contract price also indirectly responds to changes in iron ore prices. Spot rents for sea-hull vessels departed from Australia and Brazil show greater fluctuations.

He said that the thermal coal trade had changed from a contract price to a spot price in the 1980s, which not only stimulated the trading volume of coal derivative products, but also increased the volatility of the relevant shipbuilding market. He believes that the iron ore shipping market is very similar to the situation at that time.