16-12-2020 Dry bulk poised for growth in 2021 amid Covid-19 recovery, By Michael Juliano, TradeWinds
Dry bulk shipping should improve modestly in 2021 amid robust demand from China and a post-Covid-19 recovery, experts say. Global trade of commodities such as iron ore, coal and grains stands to grow by 7%, offsetting a 2% decline in 2020, according to UK-based Maritime Strategies International (MSI). Fleet employment should also improve, although it fell to only 83% this year despite lengthy crew changes and virus lockdowns, MSI added. Tonne-mile demand, which grew 2% in 2020, is set to expand by 8.2% next year. “This helps to explain why time charter markets have not been as badly impacted this year as might have been expected,” MSI director of product development Will Fray told TradeWinds. “It is also an extraordinary outcome in a world impacted by a global pandemic.”
MSI cautioned that enhanced fleet productivity in 2021 may cause tonne-mile demand to rise by only 4.7% against a 4.1% boost in supply. “Our analysis of the latter reveals that whilst the dry bulk orderbook is very low in historical terms, it is also heavily front-loaded,” Fray said. “In summary, increasing fleet productivity will dampen the impact of strong trade growth next year, and demand growth will only marginally exceed supply.”
Spot rates should recover by 25% to 30% next year, and period charter rates — at a sharp premium to spot — should improve by less than 5%, according to MSI. The Baltic Dry Index (BDI) began 2020 at 976 points and landed at 1,211 points on 11 December, reaching 1,956 points on 6 July and 2,044 points on 7 October. The weighted time charter equivalent average for capesize spot rates entered 2020 at $11,976 per day and came in at $11,889 per day on 11 December, according to Baltic Exchange assessments. This metric, which often drives BDI results, bottomed out at $1,992 per day on 14 May but attained a high for the year of $34,876 per day on 6 October.
MSI bases its optimism on an expectation that Brazil will export more iron ore after two years of disruptions that began with the catastrophic breach of Vale’s Brumadinho dam in January 2019. “Brazil’s recent guidance for 2021 is cautious and there is upside risk,” Fray said. “But overall indications are that 2021 will see another year of growth building on a 3.3% year-over-year expansion in 2020.”
Capesize rates should fare better next year with a sparse orderbook that is expected to grow only 1.5% and strong iron-ore demand from China, John Kartsonas, founder of Breakwave Advisors, said. “Yet a lot depends on factors that are familiar with shipping … while Vale will continue to dominate the news flow for capesizes as most of the projected growth depends on them to deliver on their promises,” he added.
China’s iron ore appetite may ebb slightly, however, as economic-stimulus impacts diminish, but it should remain in need as demand from Europe and Japan picks up post Covid-19, MSI said. Coal trade should also improve next year as effective vaccines allow global commerce to start returning to normal, Fray added. “Meanwhile, grains trade has been supported by easing tensions between the US and Chinese governments, and this will continue to support soybeans trade next year,” he said. “Finally, a number of minor bulks have encountered Covid-19 related issues this year, such as mine closures in the Philippines, and we expect a much better year for trade in 2021.”
China’s rejection of Australian coal may hurt panamax demand by 3.5%, but this should be offset by Chinese sourcing of coal from Indonesia, Fray believes. “Around 60% of shipments on this route are in panamax vessels, albeit on a shorter-haul route than from Australia,” he said. “India will also import more trade from Australia in panamax ships should a price differential emerge.” Capesizes may not benefit from China getting its coal elsewhere because Australia will probably export to India on supramaxas and panamaxes, he said. “In summary, the impact will be a bit of a merry-go-round but overall impact would be negative, on the basis that coking coal prices would rise and additional material would likely be sourced from Mongolia,” Fray said.