Most of the participants in the dry bulk market are expecting the strong freight rate sentiment to continue through the year, bar any unexpected black swan events. Bullish sentiment is being driven predominantly by muted fleet growth — the lowest in decades — combined with an uptick in demand, which is largely expected to track the bounce back in global GDP growth following the pandemic-led lockdowns of 2020. The rosy prospects, which may even continue beyond 2022, have attracted several new players into the dry bulk arena.
Shipping Strategy, a UK-based consultancy, said high earnings are expected until the arrival of the next wave of newbuildings in 2023. The market will be buoyed even when stimuli starts to taper off. “It is benign on the supply side — there is little scope to order vessels for delivery before mid-next year,” said the company’s founder Mark Williams. “From a demand perspective, world GDP growth of 5.5%, based on manufacturing and infrastructure-led stimulus, should give a boost to freight rates,” along with a weak dollar, he added. “Our base case is that the strength will continue in 2022 and even into 2023. It’s the best bang since the big one in 2003-2008.”
In the first five months of this year, about 16m dwt out of the 30m dwt of new scheduled capacity was delivered, according to the largest shipping association BIMCO. Its chief shipping analyst Peter Sand expects full-year fleet growth of 2.4%, down from last year’s 4%, while demolitions are pegged at 9m dwt, the third-lowest level in 11 years. Demand growth is expected to be “well ahead” of fleet expansion this year. “Dry bulk surprised on the upside in the first half and the market established itself firmly,” Mr Sand said. He added that everyone is making money from their ships in the region of $24,000 per day. “But it’s not over the moon; it’s not a super-cycle,” he advised.
Maritime Strategies International is forecasting spot rates for all segments to be stronger in the third quarter of this year than the fourth. The London-based consultancy estimates capesizes to average $35,000 per day, before falling to about $29,000 per day, while Panamaxes are forecast to drop from about $23,000 per day to just above $19,000 per day. Supras are seen averaging $22,600 per day in the third quarter, falling to about $18,000 per day, while handysizes should face a similar trend, declining from $20,000 per day to just above $17,000 per day, MSI estimates show. Oslo-based Cleaves Securities expects to see the second half broadly in line with the unusually very strong first six months. The investment bank’s head of research Joakim Hannisdahl is predicting declines in earnings for panamax-sized vessels and below through the rest of the year — albeit still at firm levels. However, he is more bullish on the larger sizes, anticipating very large ore carriers to earn almost $50,000 per day in the fourth quarter from $43,000 per day in the prior three months, while capesizes were pegged at $38,000 per day, up from the $33,000 per day mark.
“By themselves, the fundamentals of trade volumes and fleet capacity fail to explain the strength of the market,” MSI’s senior analyst Alex Stuart-Grumbar said. “Other factors lending support (and driving volatility) include changing trade patterns, Covid-19-related inefficiencies, and high commodity prices”. While the market is expecting a return of higher iron ore volumes, especially from Brazil, MSI questions whether the country’s largest miner Vale can meet its full-year guidance of 315m-335m tonnes, given a new dam issue, which will likely remove 15m tonnes in the coming months. MSI also expects a potential softening in demand from China as profit margins for downstream firms get squeezed, although the timing is difficult to predict. According to MSI, robust steel exports from China will continue to support the dry bulk market, helping handysizes. Supras should, meanwhile, benefit from higher coal volumes from Indonesia to China due to peak summer demand and ahead of import restrictions later in the year, it noted. In May, 98 bulkers loaded, up from 53 in April. Minor bulk trades are also expected to remain strong as infrastructure spend continues, while grains may hit fresh highs in the latter part of the year, based on estimates from the US Department of Agriculture.
China’s steel production reached 99.5m tonnes in May, a 6.6% gain from the same month a year earlier, according to the latest statistics from the World Steel Association. In the first five months, it produced 473.1m tonnes, a 14% increase. The rebound in the rest of the world is also interesting to note, up 33% to 75m tonnes, just shy of a record in March. Arctic Securities said the fact that crude steel production was running high both inside China and outside of it was “a highly positive backdrop for dry bulk shipping”.
According to Braemar ACM, some asset classes will receive more support than others from the grains outlook. Total grain liftings on bulkers so far this year have surpassed 267.1m tonnes, an 11% increase versus the same period in 2020, with shipments hitting a record 58.7m tonnes in April, its leading dry bulk analyst Nick Ristic said. Much of the uplift came from US shipments, while higher volumes from Canada, Australia, Brazil, and Argentina were also noted. “Soyabean trade, which will weaken over the SH of the year, is overwhelmingly serviced by Panamaxes, while smaller vessels will not be as exposed to weaker growth,” he said. “We believe the geared fleet is primed to take advantage of a boost in trade over the next few months, and we expect these vessels to receive the most support from the positive stories in the corn and wheat markets,” Mr Ristic added. The much-awaited recovery in the dry bulk market has taken hold. With low fleet supply growth and steady demand for seaborne volumes, the market should continue an upward trend for some time yet.