Dry Bulk Market Sentiment Positive Moving Forward

The dry bulk market looks to be quite positive regarding the future course of freight rates. In its latest weekly report, shipbroker Intermodal said that “the Q1 of every year often sees a decline in dry bulk freight rates. This trend was strongly reflected in the Q1 of 2023 as well, with rates slipping as a result of international holidays that softened demand. However, across all dry bulk segments, FFA rates for the 2H of 2023 continue to be higher than current spot freight prices, pivoting towards favorable demand fundamentals”.

According to Intermodal’s analyst, Ms. Chara Georgousi, “the Chinese Lunar New Year vacations fell one week earlier than usual in January, which led the market to soften sooner than typical. Meanwhile, in February, in anticipation of China’s annual parliamentary conference, market concerns over upcoming stimulus measures were spurred by policy uncertainty, while bad weather in Brazil postponed the soybean harvest and reduced shipments. As market activity picked up after the Chinese Lunar New Year, rates started recovering in March. More specifically, the strong production PMI in China pivoted towards robust industrial activity. Furthermore, in anticipation of an uptick in coal demand after removing restrictions on Australian coal in February, China imported 41.17m tons of coal in March to satisfy the incremental demand, which was 151% higher y-o-y and the biggest amount since January 2020. The lifting of steel production restrictions in some areas of China likely resulted in increased demand for iron ore and coking coal. In the meantime, Brazil’s soybean shipments were boosted by better weather and the impending export season, which in turn increased Panamax rates. In March, Brazil exported 14.2m MT of soybeans, increasing 17% y-o-y. Additionally, by making it safer for ships to operate in the area, the renewal of the Black Sea Grain Initiative on March 18th stimulated trade and increased demand for cargo”.

“Looking forward, despite the current market softness, dry bulk freight rates are forecast to strengthen amid a set of factors that suggest market firmness. More specifically, iron ore trade is now forecast to increase by 2% y-o-y in 2023, underpinned by the anticipated increase in Chinese imports of seaborne iron ore amid expectations for increased demand for steel from the infrastructure and construction sectors. The seaborne grain trade is expected to increase by 3% y-o-y in 2023, supported by strong demand in strategic regions and healthy exports from key exporters. China continues to be the top importer of grains from the US Gulf and the East Coast of South America, which helps to maintain rising tonne-mile demand for mid-sized bulkers, while the possibility of the extension of the Black Sea Grain Initiative on May 18th could be further supportive. However, there are still dangers to the grain trade, particularly those related to droughts in the Southern Cone and the extension of the Black Sea Grain Initiative. In the meantime, with Europe continuing to import coal from distant suppliers like Australia, the U.S., Colombia, and South Africa, the war in Ukraine continues to have a positive tonne-mile effect. Overall, tonne-miles in the dry bulk sector could see an increase of up to 2.5% y-o-y”, Intermodal’s analyst said.

Ms. Georgousi also noted that “lastly, fleet fundamentals form a cautiously optimistic backdrop in the dry bulk sector. Fleet growth is seen at 2.9% through 2023, while the current orderbook stands at a historical 30-year low of 6.9% of the total current fleet. On top of that, uncertainty around the emissions regulations could weigh on vessel supply through the year by prompting vessels to slow speed or spend time off-hire for retrofits”, she concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide