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Dry Bulk Market: Slight improvement in supply/demand balance despite weakness in China


  • The Baltic Exchange Dry Index (BDI) remained low in the fourth quarter due to congestion easing and weak demand in China.
  • The IMF forecasts the global economy to grow by 2.7% in 2023 and by 3.2% in 2024, following a downward revision. In its worst-case scenario, the IMF forecasts GDP to grow by as little as 1.2% and 1.6% in 2023 and 2024, respectively.
  • China’s economy is forecast to grow by 4.4% in 2023 and by 4.5% in 2024. However, downward risks remain, such as future COVID measures, continued uncertainty surrounding the resolution of the country’s property crisis, and the impact of a global economic slowdown on its export-oriented economy.
  • In 2023, iron ore and coal demand should stagnate, while grain supply should remain subdued. Growth in minor bulks should weaken as global economic growth stalls. 2024 could be a more favourable year for dry bulk demand as economic conditions improve.
  • The bulk carrier fleet is forecast to grow by 2.1% in 2023 and by 1.8% in 2024. A pick-up in demolition of older tonnage is expected in 2023 and capacity supply may be further reduced by 2-3% by the introduction of EEXI and CII.
  • We expect sluggish growth in cargo demand of 0-1% in 2023 and higher growth in the 2-3% range in 2024. Capacity supply is forecast to reduce by 0-1% and grow by 1.8% in respectively 2023 and 2024. As such, we expect a slight tightening of the supply/demand balance in both years.

Recent developments

So far in the fourth quarter, the Baltic Exchange Dry Index (BDI) has averaged around 1,592 points, a significant slowdown since the first half of 2022. Lower congestion levels and weak iron ore demand in China, caused by a weak property sector and COVID-related closures, have caused the Baltic Exchange’s Capesize 5TC index to drop by 68.9% y/y in the second half of 2022. The current rates closely match those seen during 2019 and 2020, signalling the end of the positive congestion-driven cycle seen during 2021 and the first half of 2022. Year-to-date, the BDI has on average been 33.4% lower than during the same period last year.

A downward correction in asset prices has begun, with five-year-old second-hand prices falling by an average of 16.9% since June. Smaller segments remain highly valued, whereas five-year-old Capesizes are now priced at 60.0% of a newbuilding, reflecting the market’s weakness. Newbuilding prices have also seen slight decreases, but they remain 2.1% up y/y.

Despite weaker rates, deadweight tonne miles remain 1.8% higher y/y in 2022, boosted by increased coal shipments in both volume and tonne miles for Capesize and Panamax ships. As the EU’s sanctions on Russian coal came into effect, Europe started to import coal from further afield, while Russia rerouted its coal exports towards Asian markets. It has led average haul for Russian coal exports and EU coal imports to increase respectively 28% and 38% compared to the same period last year. The smaller sizes have not benefitted but instead faced a drop in tonne mile demand as Ukraine’s grain shipments fell.

Tonne days have risen by 3.2% y/y so far in 2022, more than double the increase in tonne miles. In the first half of the year, tonne days remained high due to congestion, while in the second half, a significant drop in sailing speed made up for the clearing of congestion.

Year-to-date, dry bulk volumes have increased by 1.6% y/y, driven by an increase in coal and minor bulk shipments, which are up 3.7% y/y and 3.2% y/y, respectively. The EU and India have increased their coal imports this year, the former in order to improve energy security, and the latter in response to shortages and higher electricity demand. Minor bulks continued to perform well, despite an economic slowdown in China. However, October-November volumes fell by 5.8%, in an early sign of a slowing global economy. Iron ore shipments have stagnated so far in 2022, down 0.3% y/y, while grain shipments fell 2.3% y/y due to the war in Ukraine and Chinese soybean imports falling as prices increased.

Demand drivers

In its October forecast, the International Monetary Fund (IMF) lowered its 2023 global GDP growth estimate by 0.2 percentage points to 2.7%. The impacts of high inflation, tighter financial conditions, China’s economic slowdown due to COVID, and the war in Ukraine, will continue to affect the global economy in the coming year. In 2024, global GDP should grow by 3.2%, as by then the ongoing economic downturn is expected to draw to a close.

The IMF believes that there is a 25% probability that growth in 2023 will fall below 2%; consequently, it has also developed a downside scenario. In its downside scenario, the IMF estimates that global GDP growth could be as little as 1.2% in 2023 and 1.6% in 2024. Significant risks of monetary policy miscalibration remain, both for under-tightening and over-tightening. In the case of the former, if central banks do not sufficiently increase their interest rates, this could de-anchor inflation expectations, making it increasingly difficult to rein in inflation. If over-tightening occurs, central banks could react too strongly to inflation and disproportionally increase interest rates; this would lead the economy into a harsh recession, with economic growth plummeting. Should this downside scenario materialise , the global economy would see the lowest growth over a two-year period since the early 1980s (if excluding the two-year periods surrounding the 2009 financial crisis and that surrounding the 2020 COVID downturn).

The Chinese economy is forecast to grow by 4.4% in 2023 and by 4.5% in 2024, but downside risks remain. In a more pessimistic forecast, Barclays predicts China’s economy to grow by 3.8% in 2023, and it expects the country’s export-oriented economy to struggle during the global economic downturn. As China accounts for over a third of dry bulk imports, its economic performance could provide some relief for the sector in an otherwise weak year. The Chinese government’s economic policies for 2023 remain unclear, but the Central Economic Work Conference and the Politburo meeting in December should shed some light on this matter.

China’s COVID policy has harmed economic growth, and this could continue into 2023, while the country’s property crisis remains unresolved in a sector that accounts for a fifth of economic activity. The Chinese government has recently softened its zero-COVID policy and introduced a 16-point real estate rescue plan. It is not yet clear whether these changes will be sufficient or whether further policies will be required. Infrastructure spending should remain strong in 2023, with a special-purpose bond quota set at CNY 3.650 billion, a third of which is likely to be issued at the start of the year to boost economic growth.

The IMF has also revised its 2023 growth estimates downward for some other key importers. The EU’s GDP is forecast to grow by 0.7% in 2023 before recovering with a 2.1% increase in 2024 as Europe struggles with high energy costs. South Korea’s GDP is forecast to grow by 2.0% in 2023, down 0.9 percent points on the April forecast. Both the Japanese and Indian economies have received minor downward revisions, but the latter will continue to be a top performer, growing by 6.1% in 2023 and by 6.8% in 2024.

In its October update, the World Steel Association estimates global steel demand to fall by 2.3% in 2022, and forecasts growth of 1.0% in 2023. When looking at the three largest iron ore importers, the outlook is even more pessimistic. Demand should stagnate in China and South Korea, following a significant drop in demand in 2022, while in Japan, steel demand should grow by 1.7% in 2023, aided by growth in the automotive industry. A return to growth in China’s steel sector seems to be conditional on the recovery of the country’s property sector, as increased infrastructure spending has proved to be insufficient in 2022. Downside risks remain in Japan’s and South Korea’s steel industries, as exports account for a significant share of production, while the economic downturn could cause a drop in exports.

Coal demand is forecast to grow by 0.3% y/y in 2023, according to the International Energy Agency’s (IEA) July update. China and India will continue to drive coal consumption, while significant uncertainty remains regarding the EU’s energy security during the upcoming winter. Despite a pick-up in consumption in China, coal imports have been on the decline as the Chinese government set an ambitious mining target of 12.6 million tonnes of coal per day, which miners have largely achieved. Much uncertainty remains concerning China’s long-term coal imports, since the government has decided that peak coal consumption should be reached by 2026, while coal power plant capacity could still grow by 27.1%, based on announced projects. A complete replacement of Chinese coal imports with mining remains unlikely in the short term, but imports are likely to remain under pressure.

The US Department of Agriculture (USDA) estimates grain exports in the current marketing year to grow by 1.3% y/y, a downward revision of 1.3 percentage points since its August update. USDA estimates wheat exports to grow by 0.7% in the 2022/23 marketing year due to strong harvests in Canada and Russia. However, a weaker crop in Argentina and the drop in volume from Ukraine will limit growth and cause inventories to drop. Maize exports could drop by 4.9% y/y in the 2022/23 marketing year due to drought in the US affecting production, and the difficulty in replacing exports from Ukraine. The grain agreement that has allowed Ukraine to export over 10 million tonnes of wheat and maize was renewed to run until 19 March 2023. If exports run smoothly, this could allow Ukraine to surpass USDA estimates. Soybean exports are forecast to grow by 9.8% y/y in the 2022/23 marketing year as production in Brazil bounces back from a drought year. Import demand in China has remained muted in 2022 due to high soybean prices and low crush margins, but prices should cool once Brazil harvests its large crop in the first quarter of 2023.

Demand for minor bulks has remained strong so far in 2022, with exports up 3.2% y/y, however, October-November volumes fell 5.8% y/y. This likely reflects a slowing global economy, as well as increased competition from container shipping. Fertiliser shipments continue to struggle and are down 4.7% due to high prices causing demand to plummet. High energy prices have created opportunities within minor bulks, with fuels such as wood pellets, wood chips, and petcoke recording a pickup in demand. Bauxite shipments were also boosted due to high energy prices in Europe, as some aluminium production was moved to China, the world’s largest bauxite importer. In 2023, growth in minor bulk shipments will slow down and could even end in negative territory, depending on the magnitude of economic shocks and China’s economic growth. However, demand should recover in 2024.

Given the weak outlook for most bulk commodities in 2023 and an expected economic recovery in 2024, we estimate shipped volume to grow by 0-1% in 2023 and by 2-3% in 2024.


Contracting of bulk carriers has been low in 2022, as economic instability and uncertainty surrounding alternative fuels have affected investment confidence. The orderbook to fleet ratio is currently at its lowest point since at least 1996. As a result of a small orderbook, bulk carrier deliveries could fall to a 19-year low in 2024. Demolition is expected to increase in 2023 as environmental regulations and an economic downturn could lead older tonnage to be recycled. Nonetheless, despite an aging fleet, total demolition should remain under 15 million DWT due to the small orderbook. We forecast the fleet to grow by 2.1% in 2023 and by 1.8% in 2024.

Congestion started to clear in the second half of 2022; as of November, it is down 4.8% y/y. In response to a cooling market and a higher bunker price, average sailing speed closed in on 11 knots and is now down 4.5% for laden ships and 2.4% y/y for ballast ships. Despite a drop in sailing speed, this has been insufficient to compensate for the easing of congestion, and the supply/demand balance has worsened as a result. In 2023, both sailing speed and congestion should remain low due to EEXI and limited cargo demand growth.


We expect the supply/demand balance to improve slightly in both 2023 and 2024. We forecast weak growth in cargo demand in 2023 in the 0-1% range while growth in 2024 may increase to 2-3%. Due to a small orderbook, the bulk fleet will grow by 2.1% in 2023 and by 1.8% in 2024. However, capacity supply in 2023 may fall 0-1% due to slower sailing speeds connected to EEXI and CII implementation. In 2024, capacity supply should grow in line with fleet growth.

We expect the demand side to stagnate during the first half of 2023 due to poor economic conditions, with the effects of this possibly spilling over into the second half. In this forecast we assume that the phasing out of China’s zero COVID policy and the recovery of its property sector will be gradual, but we acknowledge that if the government decides on a sizeable stimulus, market conditions could improve significantly.

With a weak demand side, congestion should remain low in 2023, around the 2022 yearly average, while congestion will be largely influenced by supply shocks. Weather conditions could continue to be a disrupting factor as La Niña occurs for a third consecutive year, affecting mining in Australia and Brazil.

In conclusion, based on the current IMF’s base case economic forecast and the market outlook for the three major bulks, we expect freight and time charter rates will remain weaker than those seen during 2021 and the start of 2022. However, market conditions should improve from the second half of 2023 onwards as economic conditions improve. Lastly, the Chinese government will remain a wildcard, as their economic policy retains the potential to boost bulk demand.
Source: BIMCO

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