08-06-2022 Slow fleet growth bodes well for dry bulk as demand risks mount, By Nidaa Bakhsh, Lloyd’s List
Slow fleet growth should support the dry bulk market even as risks to demand mount, according to shipping association BIMCO. “Although many risks to the global economy and demand for bulk commodities remain, we are optimistic that demand growth in 2022 will match or not be far behind our estimated supply growth,” the Danish group said in an outlook report. It added that a potential rest-of-year increase in average tonne-miles for coal and grains, and a resurgence in China, could add to demand, despite inflation risk curbing demand and uncertainty about the global economy, with growth prospects continuing to be revised downwards.
So far this year, deadweight tonne-miles have risen by 0.6%, while deadweight tonne days are up by 4.8%, mainly due to congestion affecting the capesizes, panamaxes, and supramaxes, with a marginal impact on the handysizes, BIMCO’s chief shipping analyst Niels Rasmussen said on a webinar. Iron ore and grains trades have fallen, while coal movements have increased, driven by appetite from Europe which is banning Russian coal from August given the situation in Ukraine. For grains, which have been acutely affected by the Ukraine conflict, could see future yields affected by constraints on fertilizer supplies, a bulk of which comes from Russia, reaching global markets.
While efforts are being made to find a solution to let grain shipments out of Ukraine through what is called a safe corridor to avert a burgeoning food crisis, no agreement has yet been reached. According to media reports, Russian officials have met Turkish counterparts to try to work on a deal to aid grain shipments, although Russia has said that Ukraine should first clear sea mines to its ports. Russia’s president is also adamant that sanctions should be lifted.
Iron ore from Brazil has slumped 1.7% in the year to date versus the same period in 2021, while Australian exports are up 0.3%, indicating it is not volumes that are driving rates thus far. Global economic growth is pegged at 3.6%, Mr. Rasmussen said, citing IMF figures. India leads the forecasts with growth at over 8%, while China’s growth is estimated at 4.4%, lower than Beijing’s official target of 5.5%. China’s lockdowns have affected demand for iron and coal, but President Xi Jinping will be looking to ensure a recovery in the second half of the year given his upcoming re-election, he said. As a result, 60% of the issued special purpose bonds have already been allocated for infrastructure projects which is expected to stimulate steel demand.
For 2023, BIMCO currently estimates higher demand growth as commodity prices and inflation are expected to moderate, while vessel supply will be dictated by decarbonization regulations, which are likely to reduce average sailing speeds. It expects fleet growth of 2.6% this year and 2.5% in 2023, with low demolition numbers expected in the face of strong freight rates, and the lowest contracting since 1999. The orderbook is at 6.6% of the existing fleet. Effective fleet capacity could be cut further, by up to 3%, due to the international regulations that will see limits on engine performance to ensure compliance, according to Mr. Rasmussen. “We therefore expect the supply and demand balance to move in favor of owners.”