London (Platts)--6Nov2012/1123 am EST/1623 GMT

Capesize dry bulk freight rates, which have been climbing since early September, have likely peaked and should begin to soften, freight analysts told Platts Tuesday, although thermal coal market sources are undecided over the potential impact on FOB coal prices.

According to shipbroker Simpson, Spence & Young, Capesize spot freight rates from Richards Bay to Rotterdam, are currently around $10/mt, their highest since January.

Global Capesize freight has climbed over the last couple of months with an uptick in fixing activity, particularly in the iron-ore market. Freight Investment Services head of research Peter Norfolk said rates tend to spike during periods of high iron ore buying activity, but upside was limited due to the high volume of vessels available.

"There is still an oversupply of vessels, which is not going to change," he said.

Norfolk said that Capesize freight rates seem to have peaked in the short-term, having taken a step back this week.

Fearnley's Research director Sverre Bjorn Svenning said that he could not see the recent strength in Capesize freight rates continuing, with rates likely to decrease close to operating costs.

"The sole reason rates climbed was due to iron ore fixtures. Chinese buyers have been quite active through September and October, but that is now tapering off, so freight will fall. It's not rocket science, it's a question of supply and demand," he said. IMPACT ON FOB THERMAL COAL PRICES

Thermal coal market participants said that the recent higher Capesize freight rates have added pressure on FOB prices, while providing support for CIF levels.

South African Richards Bay 6,000 kcal/kg NAR FOB 90-day prices are currently bouncing up off a 34-month low of $79.75/mt set two weeks ago.

Australian Newcastle 6,000 kcal/kg NAR FOB 90-day prices hit their lowest levels for nearly three years in mid-October at below $79/mt, although have managed to recover back above $80/mt.

Meanwhile the prompt higher ash Newcastle 5,500 kcal/kg NAR FOB market sank to $69.75/mt on November 1, the lowest since Platts started assessments in January.

Trading sources told Platts that retreating Capesize freight rates this week have given Richards Bay FOB spot prices some room to breathe.

However, Barclays Capital analyst Miswin Mahesh told Platts that if Capesize freight rates continued to fall, the impact on FOB prices would be minimal. He said the marginal costs of Colombian, South African and Australian coal were already low, amid high supply flows.

But he added: "For players in the US and Russia, a slight drop in freight rates could mean that they can come back in a stronger way."

He noted that with Colombian FOB coal prices at around a $4-5/mt discount to Russian Baltic FOB material, primarily Colombian coal was being exported to Europe.

Platts Friday assessed the FOB Baltic 6,400 kcal/kg GAR 90-day price at $79.30/mt and FOB Bolivar 6,450 kcal/kg GAR at $74.90/mt.

--Jacqueline Holman, jacqueline_holman@platts.com --Edited by James Leech, james_leech@platts.com