Some have called this huge swing a return to the "natural order," as Credit Suisse ( CS) analyst Greg Lewis described it. For the last month or so, the iron-ore pricing upheaval had inverted that natural order. Though the matter is far from clear, the world's biggest miners -- Vale ( VALE), BHP Billiton ( BHP), and Rio Tinto ( RTP) -- appear to have pressed the worldwide steel industry into accepting a short-term pricing system based on spot prices.

In an attempt to gain bargaining leverage, the Chinese may have redirected some of its iron ore buying away from Brazil and Australia and toward India, where the ports are smaller and can only accommodate Panamax ships. Thus, the theory goes, Capesize rates fell as activity on the routes between Australia and China and Brazil and China fell off sharply. So sharply did they fall of that, for some time, it was cheaper to hire a Capesize than a much smaller Panamax.

Now, a Capesize is 1.2 times more expensive than a Panamax. That's still short of the historical average ratio of 1.9, however, which suggests that Capesize rates have more to go.

What's surprising is that the balance of power has -- at least for the moment -- shifted to the ship owners. That's because an enormous number of vessels now on order at shipyards are scheduled to come into service this year and next.

Fears of a coming glut have consumed the industry, and for good reason. In the first quarter of 2010, 47 new Capesize ships were delivered -- more than were delivered, of example, in all of 2008. (Last year saw a huge upsurge in deliveries, the beginning of the oversupply trend.)

Indeed, the expansion of the overall worldwide Capesize fleet in the first quarter also contributed to the weakness in rates earlier this year.

Now, though, demand appears to have caught up with that supply. "Chinese steel production has been off the charts," said Jeffrey Landsberg, a shipping-industry consultant who watches the dry-bulk trade. In March, for example, China's steel industry set yet another monthly production record. Finally, he said, that steadily brisk demand has started to absorb supply.

Indeed, port congestion has suddenly created bottlenecks. In Brazil, for instance, 60 ships are currently at anchor waiting to load up with iron ore. That's the biggest number since September 2008. Congestion is also rising at ore ports in Australia.

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