The Capesize market is experiencing one of its strongest periods in recent years: operator earnings remain close to $50,000 per day, while iron ore volumes remain high. However, analysts are increasingly questioning the sustainability of the commodity complex supporting these figures.
The main focus is on China and its steel industry. Declining profitability at steelmakers, falling production, rising steel inventories and continued weakness in the property market point to risks for iron ore demand.
This week, the China Iron and Steel Industry Association called on 44 major steel mills to tighten production controls and reduce inventories. In 2026, the margins of China’s integrated blast-furnace steelmakers were near break-even or in negative territory for most of the time.
Swedish bank SEB warned that cuts in steel output by steelmakers could weigh on iron ore demand and, consequently, Capesize freight rates.
Shipbroker Banchero Costa also notes a worsening situation. China’s crude steel production stood at 74.61 million tonnes in August, down 3% from July and 3.7% year on year. Daily output fell to an eight-month low amid production cuts caused, according to the broker, by a “sharp decline in margins.”
BRS has become more cautious in its assessment of the steel sector’s prospects. According to its latest dry bulk market research, China’s steel production is declining year on year, while the steel industry’s purchasing managers’ index has remained below 50 for the third consecutive month.
BRS has repeatedly pointed to weak demand from the property market, rising steel inventories and low profitability at steelmakers. In its latest weekly dry bulk market report, the company stated plainly that steel demand in China remains weak.
Braemar cites similar warning signs: China’s steel production is declining alongside continued deterioration in property and construction indicators.
Breakwave Advisors assesses the situation even more negatively. In the view of the New York-based freight specialist, the iron ore market balance is becoming a “medium-term headwind.” Strong ore shipments to China have helped lift Capesize earnings to multi-year highs, but low ore prices and high freight costs are eroding mining companies’ profits.
In a recent report, Breakwave said that the current strength of the shipping market depends heavily on geopolitical disruptions and declining fleet efficiency. Historically, such periods have not lasted long. Once the current supply constraints are resolved, vessel earnings are expected to “normalize significantly.”
So far, negative trends in China’s steel industry have not led to a decline in iron ore imports. According to Breakwave, China’s ore imports rose 5.4% year on year, while iron ore inventories increased by 14.1%.
