MARKETS • DRY BULK
Optimism returns – but will it last?
Marcus Hand asks how sustainable the current resurgence in the dry bulk market is likely to prove.
There has been a return of commodity that was in acute short supply in dry bulk shipping last year. No we are not talking about cargoes such as iron ore or grain, but that of optimism.
While a Baltic Dry Index that peaked in late March this year at 1,338 points is hardly glorious in historical terms it does mean that rates are at breakeven levels at least for many and is an awful lot better than the ‘unthinkable’ rates the first quarter of 2016 when the index hit an all-time low of 290 points.
In a demonstration of the improved market capesize rates neared the $20,000 per day level in late March, although had fallen back to the $15,000 daily at the time of writing.
The improved market has sparked confidence and speaking in mid- April Singapore Shipping Association president Esben Poulsson said there was a ‘lot of optimism’ at present in the dry bulk market. Now while it could be cynically suggested he was looking for something upbeat to say ahead of Singapore Maritime Week 2017 there does seem to be a positive sentiment that was not present for much of last year.
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It was a feeling shared by Scorpio Bulkers in its first quarter earnings call. ‘In general, we do remain highly optimistic for the dry cargo market recovery, which we feel is gradually shaping up, and look forward to further strengthening our position in the market in what is an improving rate environment,’ said Emanuele Lauro, chairman and ceo of Scorpio Bulkers.
Analysts Maritime Strategies International (MSI) noted ‘a persistent and positive shift in dry bulk market sentiment’ in a report. It said that higher spot rates were supported by pockets of stronger underlying fundamentals such as Brazilian iron ore exports up 10% and Chinese coal imports up 48%.
However, MSI questioned how long the stronger market would last, expecting a slower second half.
‘MSI is more positive on the near-term outlook for capesize spot earnings, partly driven by the latest data for Chinese steel and iron ore import demand,’ said MSI senior analyst Will Fray. ‘However we do expect this support to wane in Q2/Q3 and are still mindful of large port stockpiles of iron ore and evidently we are more negative than the FFA market for June and September periods.’
While the collapse in the dry bulk shipping market in 2016 was in part blamed on plunge in commodity
prices, the iron ore hitting a six-month low in mid-April may not be as negative as the previous year’s experience might suggest.
‘I could argue that the pricing of iron ore coming down is very constructive for the long-term fundamentals,’ commented Scorpio Bulkers president Robert Bugbee in Q1 results briefing. He said that the lower price would ‘obviously’ be beneficial to demand and it could pressure on ‘marginal’ Chinese producers driving imports.
Indeed while dry bulk shipping rates may have plunged to all-time lows in 2016 Chinese seaborne iron ore imports grew 7.7% to cross the 1bn tonnes mark for the first time. According to Bimco this has continued in the first quarter of 2017 with accumulated iron ore import growth into China of 9.5% over the same period a year earlier.
‘The reason for the increase in imported iron ore originates from China substituting domestically mined ore of low iron content for imported ore of much higher iron content and thereby, squeezing more domestically sourced iron ore out of the market,’ noted Peter Sand, chief shipping analyst of Bimco.
It remains to be seen if Chinese iron ore imports throughout the year can sustain shipowners’ current optimism.
Seatrade Maritime Review • Quarterly Issue 2 • June 2017 9
GRAPH: BALTIC DRY INDEX _ PHOTO: NORDEN
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