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Dry Bulk Market: 2019 Freight Rates Losses of Up to 35.7% Cloud Market’s Recovery

The first four months of 2019 have put a huge dent in the long-term recovery of the dry bulk market. In a recent analysis, shipbroker Banchero Costa said that “2018 was a reasonably positive year for the dry bulk sector, with the Baltic Capesize, Panamax, Supramax and Handysize TC indices averaging respectively 16,536 usd/day, 11,648 usd/day, 11,487 usd/day and 8,700 usd/day. However, the first 4 months of 2019 were disappointing, with the Baltic Capesize, Panamax, Supramax and Handysize TC indices averaging respectively 8,137 usd/day, 7,429 usd/day, 7,967 usd/day and 6,012 usd/day, decreasing respectively by ‐ 35.7%, ‐34.3%, ‐26.9% and ‐30.6% y‐o‐y from Jan‐Apr 2018”.

According to Banchero Costa, “deliveries in 2019 are expected to increase to around 40.0 mln dwt, from a low of just 27.3 mln dwt in 2018. In the first 4 months of 2019, we recorded the delivery of 117 units over 20,000 dwt, for a total of 11.2 mln dwt, up 12% on the same period last year in dwt terms. We forecast demolition activity to increase in 2019 to about 14.5 mln dwt, from a low of just 4.0 mln dwt in 2018, due to more modest market expectations this year, and the impact from the implementation of the ballast water and sulphur regulations. In the first 4 months of 2019, we recorded the demolition of 25 units over 20,000 dwt, for a total of 4.1 mln dwt, up 74% on the same period last year in dwt terms”.

“We estimate net fleet growth to remain flat at about 3% y‐o‐y in 2019, similar to the growth in 2018. Contracting activity has been modest. In the first 4 months of 2019, 43 units over 20,000 dwt were contracted, for a total of 4.2 mln dwt. This is ‐47% down from the 82 units, or 9.7 mln dwt, in the same period last year. The supply‐demand balance continues to slowly improve thanks to higher demolition activity, whilst trade growth generally continues at decent levels. We expect dry bulk demand to expand by at least 3% in 2019. However, persisting disruption to Brazilian iron ore exports and restrictions on Chinese coal imports could keep trade volumes more bearish in the near term, whilst we still expect strong coal import demand from India and South East Asia. The U.S.‐China trade war and the African swine fever epidemic in China are still having a disruptive impact on the soybean trade, whilst positive trends are seen in other trades like nickel ore, where Indonesia is increasing export volumes once again, and sugar with rising volumes from India and Thailand, and forecasts are currently quite positive for grain trades as well”, Banchero Costa concluded.

Meanwhile, detailing the demand side of the market and more specifically the iron ore trade, the shipbroker said that “China remains very much at the centre of the action, estimated to account for 70 percent of global iron ore imports. However, growth in China’s iron ore imports slowed in 2018, decreasing 1.0 percent year‐on‐year to 1.064 billion tonnes, even as Chinese steel production surged and domestic iron ore output continued to fall. Total imports in the first 3 months of 2019 were down 3.5 percent y‐o‐y at 260.8 mln tonnes. Chinese steel production managed to reach monthly record highs over May‐Oct 2018, bringing total steel output in 2018 to 927.5 million tonnes, a strong increase of 9.8 percent year‐on‐year. Steel output in the first quarter of 2019 was 229.9 mln tonnes, up 9.1 percent on the same period of 2018. Meanwhile, domestic ore output in 2018 fell by a drastic 40 percent year‐ on‐year as environmental and safety restrictions intensified. The lower levels of iron ore imports could reflect a combination of less ores required in steel making due to the usage of higher‐grade ores (as China clamps down on environmental pollution), the closure of illegal steel mills (which were not reflected in official steel production data), some port inventory drawdown, and increased scrap usage in steel making”.

It added that “the China Association of Metalscrap Utilization has reported increased scrap used in Chinese steel making in 2018, with 180 million tonnes in scrap usage estimated for the whole of 2018 compared to 148 million tonnes in 2017. The outlook for Chinese iron ore imports in 2019 remains worrying, as higher iron ore prices and lower steel prices since 4Q 2018 have cut into steel margins, discouraging steel mills from ramping up and restocking materials. With lower profit margins, steel mills have also been increasing consumption of lower‐grade ores in place of the more expensive medium to higher grade ores – which is bad news for higher quality imports from Australia and Brazil. On top of this, supplies from Brazil have decreased in early 2019 following Vale’s dam collapse in end January, further lowering their competitiveness. There have also been concerns of waning demand both globally and in China, especially in the wake of trade tensions, although the government’s pledge to increase infrastructure spending could avert a sharp slowdown”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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