After a cautious year, the dry bulk market is at the point where supply and demand are coming back into balance, but operators seem to be looking to go back to the yards to refresh their fleets. Yet, in the absence of new black swan events of a similar magnitude as the Brumadinho dam disaster in Brazil and a global pandemic, Peter Lindström believes that the coming years will deliver demand growth for vessels that exceeds the fleet growth. “This will increase freight rates further,” the head of Klaveness Research said in a presentation.

While he does believe that higher freight rates will trigger more newbuilding orders, he expects supply growth to trail demand growth of vessels in the coming three to four years because of the uncertainty around the choice of fuels and propulsion systems. Mr Lindström argues that “if we walk down memory lane, we see that any uptick in freight rates in the past 20 years have triggered big waves of newbuilding orders”. So, “is there any reason not to expect a big wave of newbuilding orders this time around?”, he asked.

The average lead time between orders and delivery in recent years has been more than 24 months and the orderbook of the yards are being filled up with container orders. This means that time is running out for orders with delivery in 2023.  Based on the current level of the orderbook, Mr Lindström with a high level of certainty, predicts that fleet growth will be at historically low levels in the next couple of years.  

Further, Mr Lindström argues that what happens on the demand side in the coming months is not that important for dry bulk freight market at present. “The reason is that today’s prices of commodities, such as iron ore and coal, are far above the costs of the exporters with the highest marginal costs.” It is the supply of raw materials that are the restrictive factor for trade — not demand. He cited the example for iron ore which is around $200 per tonne for China delivery.

Those seaborne exporters with the highest marginal production cost have a delivered cost in China of about $100 per tonne given today’s freight rates, he said. “We see the same picture on coal and within the minor bulks. The growth levels in the seaborne trade will depend on how fast the exporters are able to ramp up production.”

He agreed that with commodity prices well above the delivered cost of the marginal producers, the exporting companies are incentivized to ramp up export as much as possible. “Higher earnings in dry bulk is not a false dawn, it is only the predawn.”