A surge of iron ore and coal imports into China has boosted the earnings of dry bulk carriers and halted the wave of bankruptcies and defaults that swept the sector late last year and early this year.

Average day earnings for the largest ships, known as Capesizes, have risen from about $17,000 on April 6 to a high of $93,197 on June 3. Prices have since fallen but were yesterday at $70,272 a day, almost four times the rate in early April.

The surge has brought relief to a sector that saw possibly the sharpest fall-off in earnings of any industry as a result of the economic downturn. Average Capesize earnings fell 99 per cent from a peak of $233,988 per day on June 4 last year to about $2,400 in December.

However, owners and shipbrokers fear the slowdown and the large number of dry bulk ships awaiting delivery could soon push the market back down.

“I\'m not very optimistic about its sustainability,” Michael Bodouroglou, executive chairman of dry-bulk shipping company Paragon Shipping, said of the spike.

The rate rises follow a recovery of activity in China\'s imports of iron ore. The suddenness of the surge has caused severe congestion at the busiest Chinese iron ore ports, such as Qindao. Because congestion prevents ships heading back to pick up new cargoes, it has helped to push prices up further.

The increase has been most pronounced for Capesizes because they had previously seen bigger falls in rates and are uniquely exposed to the steel industry.

Capesize ships carry only iron ore and coal, most of it destined for steel mills. Smaller ships have also benefited as charterers struggling to find affordable Capesizes have resorted to chartering smaller ships instead.

Rates for Panamaxes, the largest ships able to use the Panama canal, were $18,383 per day yesterday, up from about $12,000 in early April.

However, Dale Ploughman, chief executive of Seanergy, another dry bulk shipping company, said many of the imports had been by iron ore traders, rather than end customers. That could mean the ore was being imported to be stockpiled rather than used immediately. Large stockpiles can produce sudden falls in imports later.

Quentin Soanes, an executive director at London-based Braemar Shipping, pointed out that 18 Capesize ships had already been delivered this year, a further 106 were due for delivery and only 12 have been scrapped.

“We don\'t think it\'s sustainable,” Mr Soanes said of the spike. “There are still a lot of newbuildings that will deliver this year.”

The market recovery could prevent owners from scrapping old ships – a move that was widely considered necessary to prevent over-supply. Most of the dry bulk ships that were rested several months ago because they could not operate profitably have already returned to the market.

However, there remain some grounds for optimism. The market was now clearly functioning again, Mr Bodouroglou said. It seized up almost entirely last autumn as the credit crunch restricted trade finance.

“My feeling is that the industry\'s fundamentals have come into play again,” he said.

Both Mr Ploughman and Mark Richardson, head of futures at London-based SSY Shipbrokers, also insisted there was real substance to the rally. The iron ore traders must believe there was a real market for their product to be importing it into China in such quantities.

“They don\'t take a cargo of iron ore, which is 150,000 tonnes, and just hope they\'re going to sell it,” Mr Richardson added.