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Trade Truce Will Take a While to Translate in the Dry Bulk Market

Renewed and increased demand for dry bulk carriers, after the recent truce in the ongoing trade war between China and the US, could take a while to be felt in the market. In its latest weekly analysis, shipbroker Allied Shipbroking said that “the winter season was off to a positive footing, with the world’s two largest economies witnessing a gradual thaw in relations. President Donald Trump and China’s Xi Jinping called for a temporary trade truce this weekend during a steak dinner in Buenos Aires with both seeing the move as a major step in resolving the issues at hand. Most however took a more look warm approach to this most recent announcement, seeing the move as an extension to the ongoing trade tensions rather than an ending. The current proposition made is for a postponing of the planned U.S. tariff hike on Chinese products for three months in exchange for a substantial purchasing spree by China on agricultural, energy, industrial and other U.S. products”.

According to Allied’s, Head of Research & Valuations, George Lazaridis, “as things stand now, there is still a fair way to go before we can say that some considerable progress is being made in finding common beneficial ground with several “sticky” issues still at hand. Nevertheless, the markets took favorably to the news as markets opened up today, with most commodities showing a burst of optimism as prices started to rally. This rally driven by a sense of relief helped turn around the pessimistic attitude that has been reflected during the course of this year so far, with fears of a hit on China’s economic growth figures from the trade fallout now having largely been dissipated”.

Lazaridis noted that “most notable of the price boosts has been witnessed on the grain front, with Soybeans leading the way as the U.S.’s largest trading partner, namely China, now looking very likely to re-open its doors right in the midst of the peak exporting period. Yet commodity prices have yet to spill over to the actual market, with most traders still waiting for more concrete evidence of the recently announced deal. A mere pledge to buy a “very substantial” amount of U.S. goods from China is far from the commitment to drop the steep tariffs on soybeans, corn, sorghum and wheat it imposed earlier on in the year”.

Allied’s analyst said that “for the moment most of the market movements noted seem to be by speculators on the major commodities exchanges. But at the face of it, the way that current events have transpired, it looks as though they couldn’t have set a more unfavorable market timing if they wanted to. This decision comes just weeks after China built up a large soybean stock, while at the same time its local demand has started to wain in the wake of an African swine fever epidemic spreading within the country’s significant pig industry (a major consumer of soybeans). Year to date Chinese imports of soybeans have been just 0.5% down year-on-year, with China having effectively shifted its demand to alternative sources of supply such as Brazil, Russia and Canada”.

“For the moment it looks as though in terms of effective demand generated for dry bulk vessels will take some time to seep through. With some slight benefits likely to be seen in mid late December. Given the recent movements seen in the dry bulk freight space, this may well come a touch late, with most of the size segments having shown a subpar performance when compared to the usual freight rate trends that are noted during the final 3 months of the year. Sentiment has taken a considerable hit and it looks as though it will take a fair bit of effort before we can see optimism reemerge amongst most market participants. For the time being we can take the recent positive news with a “pinch of salt” and a touch of hope for the ensuing negotiations between these two major economies coming to a more favorable and mutually beneficial agreement rather than outright trade war”, Lazaridis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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