OREANDA-NEWS. June 20, 2016. Capesize freight rates in Q2 2016 began to see an improvement after they hovered within a 10% range of the lowest levels seen, through most of Q1.

The improvement seen was due to underlying factors, such as bunker prices, market derivative rates and positional tightness.

This was recently repeated in the Pacific, where the S&P Global Platts assessment hit a 7 month high at \\$4.95/wmt for a Capesize vessel to move 170,000 mt of iron ore from Port Hedland, Australia, to Qingdao, China, on June 8, 2016, up approximately 73.5% since the market-s low in late February.

According to sources, the strong rally was attributed to 3 major factors:

1) The upcoming "Dragon Boat Festival", a 3 day holiday in China starting on June 9th to the 11th;

2) All three iron ore majors attempting to fill in the gaps in their loading schedule, resulting in a higher demand for vessels and a fixture frenzy before the start of the holidays (prompted by the end of the Australian Financial year on 30th June 2016);

3) Strong bunker prices and higher market derivative rates.

For front-haul, Platts assessment for a Capesize vessel to carry 170,000 mt iron ore from Tubarao, Brazil, to Qingdao on June 14, 2016 was assessed at \\$9.25/wmt, up approximately 78% since its lowest in February.

The support was mainly derived from the stronger market in the Asia Pacific, as owners preferred to keep their vessels in the Asia Pacific region, thus limiting the number of ballasters to the Atlantic.

As the fundamentals continue to remain unchanged, market remains largely unpredictable sources said, with participants largely undecided on the market's direction.

Sources however concur, that recovery will require owners to work together and correct the oversupply in tonnage by scrapping and cold layups.