Fundamentals hit dry bulk again

(Posted on 03/12/19)

The fundamental balance in the market has worsened in 2019 with supply growth outstripping demand, and BIMCO expects that this will continue into 2020.

After peaking in September, the fundamentals of the market have begun to drag on freight rates – although the rates remain above the average experienced so far this year, buoyed by a handful of positive developments during Q3.

Capesize ships are the only dry bulk ships to have seen average freight rates in the first 10 months of this year higher than those in the corresponding period of 2018 with average rates up USD 624 per day, pulled up by the peaks in earnings experienced towards the end of Q3. On the other hand, average earnings are down for all the smaller vessel sizes: -3.2% for Panamax, -12.7% for Supramax and -17.1% for Handysize.

Although Brazilian iron ore exports have suffered after the Vale tailings dam collapse in January, firmer exports in Q3 helped push Capesize rates to six-year highs, despite total Brazilian exports still being 12.3% lower in the first 10 months of 2019 compared with the same period of 2018.

For only the third time this year, monthly exports exceeded 30m tonnes, with 31.2m tonnes exported in October. In 2018, this export level was reached in nine of the 12 months. Indications from Vale suggest that exports may face renewed pressure through to the end of the year, Although after falling to zero at the start of November, the number of spot cargoes being reported has increased.

Imports of iron ore to China have also fallen, down 1.6% in the first 10 months of the year. Nevertheless, imports in September were the third-highest ever, pulling year-on-year accumulated growth rates up from the -5% they had been hovering around throughout the year.

2018 was the first year in which Chinese iron ore imports fell, and BIMCO expects this trend to continue as China moves towards using scrap steel, rather than imported iron ore in steel production.

Despite all earnings coming down since their peak in September, they remain much higher than during the first half of the year when rates tumbled.

Agricultural exports have been a mixed bag so far in 2019. While overall soya bean exports from Brazil and the US are down 6.8% in the first nine months of the year – a loss of 90 Panamax loads (75,000 tonnes) – corn exports from Brazil and Argentina have been a positive development.

Brazilian corn exports are up 123.8% in the first 10 months of the year, with volumes from Argentina up 48.7%. This brings total exports from the two countries to 60 million tonnes, or an additional 317 Panamax loads, compared with exports from the two countries in the same period of 2018. On the other hand, the US has seen falling corn exports, down 44.3% in the first nine months of the year.

Rates for these vessel sizes have since fallen, as US soya bean exports, usually strong in the last four months of the year have, like last year, disappointed in September and October. The US soya bean marketing year runs from September to August, and in the first nine weeks exports are down 3.8 million tonnes from the same period in the 2017/2018 marketing year-the last one unaffected by the trade war. Despite rumoured breakthroughs in trade talks, BIMCO expects that exports in the main US soya bean season will continue to be lower than those in previous seasons unaffected by the trade war.

Dry bulk fleet growth in 2019 is already higher than it has been in any year since 2014. It is currently standing at 3.5%, and BIMCO expects it to rise to 4.1% by the end of the year. This is based on the expectation that a further6m deadweight tonnage (DWT) will be delivered betweenmid-November and the end of the year, adding to the 36m DWT already delivered, and 0.9m will be demolished. This would bump the total demolition up to 7 million DWT.