Dry bulk Market: Demand to Grow by up to 2.5% in 2023 BIMCO says
Average haul is estimated to increase slightly, contributing between 0% and 1% tonne miles in 2023. Sailing distances for coal increased due to sanctions on Russian coal, which came into effect in August 2022. Average haul for iron ore and grains could also rise as Brazil increases exports.
According to the International Monetary Fund (IMF), global GDP growth is expected to slow down to 2.8% and 3.0% in 2023 and in 2024, respectively. High inflation, tighter monetary policy and the resulting deterioration in financial conditions are some of the factors limiting economic growth.
The IMF forecasts China’s GDP to grow by 5.2% in 2023, slightly above the government’s target of 5.0% and an improvement over the 3.0% growth in 2022. However, concerns over the strength and speed of China’s economic recovery remain. While China’s GDP increased by 4.5% in the first quarter of 2023, it was followed by a slight weakening in domestic demand during the following two months. Consumer prices stagnated in April, and producer prices fell due to an oversupply of industrial goods. Despite this short-term imbalance, we still expect a gradual improvement in China’s economy.
The global outlook for steel demand remains positive, according to the World Steel Association, who forecast a 2.3% and 1.7% demand increase in 2023 and 2024, respectively. In 2023, Chinese steel demand should improve due to infrastructure projects and high automobile production. Demand from the real estate sector could also improve in the second half of this year, driven by government support measures. In 2024, Chinese steel demand could stagnate if the government limits additional stimulus.
In line with what has happened in previous years, the Chinese government could cap steel production at or below 2022 levels to reduce industry emissions. Under this scenario, Chinese iron ore imports would fall in the second half of 2023 and steel imports would increase to meet demand. The impact of such a measure on demand growth will depend on the origin of the replacement steel imports. Demand growth would be determined by sailing distance and whether the steel exporter imports its production inputs (iron ore, scrap steel and/or coking coal) or instead relies on domestic supplies.
Though global coal demand will only grow marginally in 2023, we estimate that coal shipments could increase between 5% and 6% in 2023 but fall between 2% and 4% in 2024.
Coal shipments into China and India have surged year-to-date, despite these countries’ push to reduce import dependency by increasing domestic coal mining. However, electricity demand in both countries has risen due to growing economic activity, while unseasonably high temperatures have added further demand. Coal prices have also fallen, boosting its attractiveness to price sensitive importers.
In 2024, coal shipments to the EU could fall further, due to a mixture of weaker demand and a push to transition to renewable energy. An increase in electricity production from renewables and higher domestic coal mining in India and China will also trim demand.
Based on figures from the United States Department of Agriculture, we estimate that grain export volumes will fall 0.9% in 2023 and grow 5.0% in 2024. Wheat exports are expected to slightly increase in both years, driven by higher exports from the EU and Russia. Maize exports could drop by 12.0% in 2023 before recovering by 11.4% in 2024. A lower risk of drought in Argentina and the US should support this recovery. Lastly, soybean exports could rise 10.5% and 4.4% in 2023 and 2024, respectively. Brazil is expected to continue boosting exports, while exports from the US could fall, due to higher competition from Brazil.
On 18 May, the Black Sea grain agreement was renewed for two additional months. It has seemingly become more difficult for the parties to commit to a longer time horizon. As such, an end to the agreement remains a potential downward risk to grain shipping.
Year-to-date, minor bulk demand fell 1.6% in 2023, due to lower global economic growth. Cement and clinker shipments have dropped the most, as construction activity in China fell and the earthquake in Turkey caused a reduction in exports. Fertilizer shipments have stabilised compared to 2022, but they remain lower than pre-war levels. Bauxite on the other hand has continued to grow due to higher aluminium production in China. In 2024, we expect an improved global economic outlook to boost demand for minor bulk commodities.
Given China’s role as a key import market for dry bulk commodities, major developments in its economy could significantly alter our demand outlook. As previously discussed, China’s economic recovery has not so far been linear or predictable. Since our last update, some positive signs have emerged from China’s real estate sector, however the crisis remains unresolved and is still hindering dry bulk demand.
The shift in climate patterns from La Niña to El Niño could also impact dry bulk demand. Higher rainfall in the US and Argentina could improve grain yields, while dry conditions in India, Australia and Brazil could threaten grain exports. Temperatures and dryness in India and Southeast Asia could also increase. This could boost coal import demand through an increase in energy demand and a reduction in electricity generated from hydropower. The likelihood of mining disruptions due to flooding in Australia and Brazil should meantime diminish.
Source: BIMCO, https://www.bimco.org/news/market_analysis/2023/20230530-smoo-bulk