Dry Bulk Market: The Handy Sector Fights Back
“However, it seems that this trend has now been reversed with their annual average earnings for 2021 so far having reached US$16,288, a figure more than double compared to last year’s annual average TCE, whilst being the highest figure since 2008. Given the disappointing freight earnings of past years, many in the market had lost interest in this segment, a fact that is clearly illustrated in the declining pattern of the orderbook on a y-o-y basis over the past 5 years. The current orderbook is estimated at close to 95 units, an impressive fall when compared to the respective number of 329 units noted in the beginning of 2016. This amounts to an average annual drop of more than 20% since then”. Allied said.
According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “the drop in new orders, combined with high scrapping activity, has had as a result an annual fleet development of around 1% now, while the growth rate has not been much higher over the past few years as well. Undoubtedly, this modest increase on the supply side has been a major bullish factor, but this has not been enough on its own to boost freight rates to today’s record levels. These levels could not be reached without a parallel shift of the demand curve. Over the past few years, global economic growth has not been something to write home about, with the last 5-years average GDP growth being around 1.8% (heavily affected by the negative trends of 2020)”.
He added that “a disappointing figure, given that the average GDP rise during the period 2011-2015 was almost in the double digits. This has had an important impact on international seaborne trade. Drilling down to specific commodities, this view is further emphasized. Steel products are one of the key cargoes for this segment and it is interesting to see that after 2016, there was a significant drop in total exports from key exporting nations (China, Japan, Russia). The annual export volume in 2016 was 337.8 million MT, whilst since then the average annual volume has been just 290.2 million MT. However, the gradual recovery of the global economy (expected GDP growth for 2021 is 5.2%), has seemingly reversed this pattern. After a disappointing Q1-Q3 2020 period, steel export figures have showed a robust recovery, reaching close to their pre-pandemic volumes. According to official data from China, exports during January 2021 surpassed the respective exports of January 2020 by more than 10%”.
Vamvakas concluded that “the same pattern is witnessed across other bulk commodities, such as grains, wood products and agribulks, where Q4 figures show a clear rebound. It is challenging to see how long this balance can hold, although it seems as if this robust demand growth will continue as we move further into 2021 (and more countries return to business as usual). This is likely to further feed trading interest, retaining as such current earnings for owners. However, we should be prepared for the possibility of an optimal equilibrium point being reached sooner or later, once production rates and inventories around the world return back to pre-pandemic levels. At the same time this increased profitability could just as easily lead to a fresh newbuilding rush, something that would push this freight market micro-cycle quicker over its peak”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide