The dry bulk market’s recovery looks to be sustainable this time around, as the market is looking set to break from the usual trading patterns once more. Additionally, demand is much more solid and more than enough to compensate for the new vessels added to the fleet. In a recent weekly report, shipbroker Allied Shipbroking noted that “we have seen a fair amount of strength in the dry bulk freight market during the months of June and July take place although the overall Baltic Dry Index has still kept below the psychological level of 1,000 points. Despite the fact that the summer season has been traditionally seen as a point of softening in the market (a big exception was 2015 where we noted one of the most impressive market rallies during a summer period), as demand typical subsides during this three-month period. This year seems to also be breaking out of typical patterns with China’s great appetite helping to drive the market even during low seasonal points”.
According to George Lazaridis, Head of Market Research & Asset Valuations with Allied, “amid numerous environmental inspections that are currently undertaken in China’s mines, processing plants and mills, disruptions in operations have helped generate a surge in imports and have brought back a bullish view amongst most with regards to the iron ore, steel and coal trades. In the midst of this we have seen China’s iron ore futures surge by nearly 8% today, hitting their trade limit-up and their best daily performance since November 2016. With Steel mills in the region continually showing increased activity, they now hold an insatiable appetite for raw materials, driving demand for imports of both iron ore and coking coal” he said.
Lazaridis added that “on this basis, we have also seen most commodity analysts make upward revisions on their near-term expectations for iron ore and coal prices, while the majority still hold doubts as to how the market will move after that point. What drives the point home is the fact that during the same period we have seen a activity in China’s construction sector climb to the highest level it’s been in more than three and a half years, while the Purchasing Manager’s Index (PMI) for the steel sector has risen to 54.9 in July (anything above 50 represents a growth) the fastest pace it has shown since April 2016. Through this rally we have seen activity rise on routes that are typically not related to this trade, with the U.S. noting its biggest jump in coal exports as the upward drive in prices has allowed U.S. supplies to compete in Asia. Given that U.S. sourced coal is largely price dependent, it plays more of the role of a swinger supplier, while at the same time its typical direction is towards India rather than the world’s largest importer, namely China. This has explained the increased activity and rise in freight rates that we have seen from the U.S. these past couple of weeks”.
“Given that during the first 6 months we have seen a growth in the dry bulk fleet of 1.68% while more particularly the Capesize and Panamax fleets have risen by 2.1% and 1.58% respectively, the growth in demand has been more than ample to cover the new vessels entering active service, while given that the rate of growth in the fleet should slowdown during the latter half of the year and with most viewing a further strengthening in Chinese steel and iron ore demand from infrastructure and real estate and the complementing of this by solid growth in global activity ex-China, the fundamentals look ripe for very good performance to take place during the second half of the year and more particularly during the final quarter which is also usually a seasonal high point in the year. Despite all these positive points, it seems to be a very difficult case to manage to break and hold above the 1,000-point mark on the BDI during the next month. Though managing to keep at fairly good levels for this time of the year will in theory help feed a stronger rally come end September early October”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide