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Dry Bulk Market: Hopes of Trade Agreement Could Restore Market Confidence

The Capesize dry bulk market is staring towards a challenging 2019 year, with demand for iron ore from China’s steel industry having taken a hit over the course of the past few weeks. However, the prospect of a potential trade agreement between US and China could help alleviate concerns and restore confidence in the market.

In its latest weekly report, shipbroker Allied Shipbroking said that “it was yet another Lunar New Year with market jitters, as the BDI reached 595 basis points, which was its lowest point in almost 2 years and 9 months. All this brought swift memories of the 2016 drop, with many market pundits quick to point out the resemblance. When looking at the data in more detail it quickly becomes apparent how many the differences really are. The market collapse noted since the start of 2019 has been a demand side issue in the making for some time now and in part was hastily brought into the fore front by the slack created by the Chinese New Year festivities coupled by a bad coincidence of unfortunate events coinciding”.

According to Mr. George Lazaridis Head of Research & Valuations with Allied Shipbroking, “nevertheless, the issues that dry bulk shipping has to face are fundamental in their nature and are far from being resolved just yet. The freight market may well have shown signs of a slow recovery, though this has mainly been driven by the smaller size segments. The Capesize market seems to still be caught in the “eye of the storm”, though it was also the one to signs of softening much later this time around. The issues seem in part to be mainly effecting the iron ore trade, of which the Capesize segment heavily relies on for feeding its demand. Unlike what was seen in the majority of the other main dry bulk commodities, iron ore imports into China surged during January fueled by strong restocking demand at local steel mills ahead of the Lunar New Year holidays”.

He added that “this in part helps describe the more resilient freight rate levels experienced during the same period, while as the Pacific demand started to go silent during late January and early February the market was simultaneously hit by the Vale dam disaster which essentially resulted in a sharp cut in the number of STEMS coming to market during that period. The market has yet to find a stable footing since, with traders not having returned with the same firm interest, especially given the sharp increase in the price of iron ore that were noted last week off the back of fears of extended disruptions to be seen in Brazil. Prices for Iron ore had jumped last week to their highest level in four and a half years. This seems to have caused for a significant drop in appetite amongst steel mills in China, who not only seem to hold fear as to the future outlook for steel products but also look to hold doubts as to the actual disruption that will take shape at the world’s biggest iron ore miner. This translates into softer demand levels to be noted in the near term as most look to take a wait and see attitude hoping for lower price to emerge soon, while still held by the firm stockpiling that took place in early January”, Allied’s analyst noted.

Lazaridis concluded that “given that we are staring to see some slightly more optimistic messages coming out of the ongoing trade talks between the US and China, fortunes might turn positive much quicker than most would have anticipated. Given that one of the biggest concerns right now for most Chinese steel mills are directly linked to the fears of a further slow down in the Chinese economy, a positive resolution in these trade talks would help ease back these fears as well as possibly promote further growth in the steel products trade (although this largely depends on what the two sides end up agreeing on). What certain is that 2019 will not be an easy ride for the Capesize market, given all these ongoing demand side problems coinciding with a considerably higher orderbook delivery schedule for the year compared to 2018”.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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