Dry Bulk strength could extend into Q2
Uncertainties still loom
large due to the global pandemic, many countries are recovering economically
and actively rebuilding commodity stockpiles, and expectations are that
shipments will increase further in Q2, while freight rates will remain steady.
Pent-up demand for
commodities from grains to coal powered a surprisingly strong recovery in the
dry bulk shipping market in the first quarter, with both freight levels and
earnings reaching multi-year highs — and that momentum is continuing in Q2.
“I think the Q1
performance [exceeded] everyone’s expectations,” a Capesize ship-operating
source said.
Platts APSI 5 regional
Supramax index, which was launched in February, peaked at $24,863/day on March
24 after opening at $10,834/day, and stood at $22,358/day April 12.
The Platts KMAX 9
Panamax index hit a year-to-date high of $28,448/day on March 23 and averaged
$18,276/day in Q1.
The Capesize market
kicked off 2021 on a firm note with Platts Cape T4 index basis 0.5% sulfur
marine fuel touching a year-to-date high of $23,908/day on Jan. 12 and
averaging $14,367/day over Q1. This far exceeded the $4,377/day averaged in Q1
2020, as well as the year-high at $8,897/day reached on March 31, 2020.
Robust iron ore prices,
grain shipments and ballooning minor bulk demand, along with an imbalance in
fleet positioning, firmed the dry freight market in Q1. Interestingly, freight
rates started to move first in the smaller ship segments.
The Supramax and
Handysize segments saw sharp year-on-year jumps in cargo volumes of 9 million
mt and 6.5 million mt respectively in January, while the larger Capesize and
Panamax ships saw improvements in the range of 2.5 million mt and less than 1
million mt.
Brazil iron ore exports rise
Brazilian iron ore miner
Vale raising its production guidance to 335 million mt for 2021, up 11.65% from
2020, the market expects shipping volumes from the Atlantic to increase.
The key impact will be
when ton-mile demand out of the Atlantic increases from economic recovery
outside of China just as the major iron ore importer imposes steel production
cuts.
China’s major
steel-producing city of Tangshan has already imposed restrictions on steel
production to combat air pollution. Seven steelmakers have cut production by
50% over March 20-June 30 and by 30% from July 1 to year end. However China
customs data shows the country imported 181.5 million mt of iron ore in the
first two months of 2021, up 7% year on year.
China’s coal consumption
for heating over January-February rose 8.1% year on year to 93.85 million mt,
according to Platts Analytics. Domestic coal production hit a record high in Q1
while customs data showed the country’s coal imports totaled 43.1 million mt
over the same period.
Grain trade data was
also strong. US corn sales for the 2020-21 season surged to 31.8 million mt
from 13.6 million mt the year before, while US soybean sales rose to 6 million
mt from 5.1 million mt over the same period, according to industry reports.
Shrinking orderbook
Newbuilding orders in
the dry bulk segment fell in 2020 as the pandemic deterred fresh interest. Only
around 200 ships were ordered in 2020, well below the 600 averaged over
2010-2019.
The net effect of a
limited orderbook and growth in US grain sales paint a rosy picture for small-
to mid-sized vessel segments in Q2. However, in the past two weeks freight
levels have softened slightly, with the Indian Ocean region proving a weak link
for Supramax ships.
A chartering source with
a commodity trading company said the freight market on the west coast of India
may remain resilient due to a rush to deliver cargoes before the onset of
monsoon season in May. “The majority of participants on the Indonesia to India
trade route have taken Capesizes, so the tonnage on Supramaxes, which should
have ended up on the coasts, has not,” the source added.
Secondhand market heats up
A busy secondhand sales
and purchase market for dry bulk ships, along with a spurt in period
chartering, is pointing to a steady freight market in Q2, market sources said.
Capesize operators and
mining majors have snapped up tonnage for one-year periods in the range of
$20,000-$25,000/day depending on the quality of ships.
Along with firm spot and
period businesses, asset prices have risen, too. Shipbroker Braemar ACM in a
report said the spike in the secondhand sales volumes, which began in late
2020, saw a record 214 ships changing hands in Q4 — a 91% year-on-year
increase. The momentum continued into Q1, when 203 transactions were recorded,
up 146% on year.
IMS
Source: Platts