THE dry bulk market has slumped to the lowest level in two years and seven months amid the usual lull associated with Chinese New Year.
The first quarter is usually the weakest for the market as industries shut for the week-long holiday, curbing demand for raw material commodities, but questions remain over China’s appetite after the lunar new year celebrations.
Maritime Strategies International said there was potential for the capesize market to surprise on the upside “if a sharp and sustained recovery” in China’s steel industry materialises, but near-term pressures remain. About 30m dwt of new tonnage is due to deliver this year.
The London-based consultancy is “cautiously predicting” an improved market in the third quarter, with capesizes returning to $20,000 per day on average, but sub-capesizes will be hit by improving fleet efficiencies, it said in a monthly note.
It is predicting “a small rate of growth” in cargo volumes this year, while demand for cargo-carrying capacity is expected to decline by 4m dwt year on year given the fleet efficiency improvements.
The Baltic Dry Index fell to 740 points on January 23, the lowest level since early June 2020.
Leading the declines over the past week were the capesizes, which slumped 44% to $6,094 per day over the week, the lowest since early September, with the C16 revised backhaul moving steeply back into negative territory, at -$7,822 per day, according to the Baltic Exchange.
Handysizes dropped by 11% to $7,819 per day, followed by supramaxes, which decreased 4.2% to $7,097 per day, and panamaxes, which declined by 2.2% to $9,428 per day, the data showed.
Most routes were in the red but notable exceptions included the panamax China-Indonesia round voyage and the Baltic Supramax Asia Index, which have started to creep up from last week.
Norway's Arctic Securities said dry bulk markets have corrected lower as volume growth eased and port congestion normalised.
Its near-term outlook suggests limited upside for spot-oriented equities and as a result, the investment bank has downgraded most names in its coverage to ‘hold’.
As economic activity is an indicator of dry bulk demand, China's gross domestic product growth is expected at 4.4% in 2023 from 3.2% last year, which is a positive, but global GDP, which is expected to be lower than last year, at 2.7%, could be a drag on market prospects.
While China's steel is expected to slow marginally over the coming two years, Arctic believes that mills will continue to prefer higher-grade iron ore, so that volumes out of mainly Australia (but also some from Brazil) are expected to take trade growth to about 2%, after contracting by a similar magnitude in 2022, it said in a note.
It sees coal trade growth at 3% this year, while growth can also be expected in the grains trades.
Overall, it expects dry bulk volume growth of 2.5% in 2023 and 2.2% in 2024, after a flattish 2022 (+0.2%), while tonne-mile growth is likely to come more or less in line with volume growth.
On the supply side, it expects 2.7% fleet growth this year, dropping to 0.4% in 2024, which underscores its long-term healthy view of the market as supply and demand factors dictate market direction from here, given the unwinding of fleet inefficiencies.
Arctic expects average capesize rates of about $17,000 per day in 2023, slightly higher than last year's average, with rates predicted much higher in the second half of the year.
While sub-capesizes have outperformed the largest vessels over the past years, Arctic expects a reversal back to “a more historical earnings relationship”.