Will 2020 Mark the Return of the Dry Bulk Market to Form?
With a couple of weeks still remaining for yet another year of a rollercoaster ride in the dry bulk market, analysts are pondering whether 2020 will be any better. In a recent report, Allied Shipbroking said that “the uncertainty witnessed this year in the iron ore trade has been extraordinary making for a very volatile freight market for the Capesize sector, which varied wildly from a low of US$3,460 to a high of US$38,014 in the year so far. However, the improvement being witnessed since Q3, has boosted overall perception as to the prospects of the iron ore market in 2020”.
According to Mr. Yiannis Vamvakas, Research Analyst with Allied, “Expectedly, China is the key player in this trade, with the biggest majority of Australian and Brazilian cargoes being swallowed up by Asian’s giant. The increases in traded volume noted in the second half of the year has led inventories in the country to reach relatively high levels to say the least. However, according to Shanghai Metals Market, iron ore stocks across 35 Chinese ports fell last week to 114.17 million tonnes, due to fewer port arrivals. This is likely to be a temporary fall, as further increase in imports are anticipated over the following weeks. For 2020, demand for infrastructure purposes are expected to ramp up, following the decision by the Chinese government earlier this year to double the value of large-scale infrastructure projects. More specifically, the National Development and Reform Commission (NDRC) has approved 21 projects, worth at least 764.3 billion yuan (US$107.8 billion)”.
“On the other hand, as we move deeper into the winter season, steel demand in the country is expected to slow down as part of the winter pollution curbs. At the same time, requests for higher grades of iron ore could drive for further increases in import volumes, as mills look to maximize their productivity with the same amount of emissions. Another key factor to note is the usual practice of steel mills to re-stock ahead of the Lunar New Year holidays, which is in late January 2020. In terms of industrial production, the recent Beijing stimulus measures seem to have helped push the Chinese PMI unexpectedly to 50.2 in November, above the 50-point mark that separates growth from contraction. In the rest of the world, steel demand in developed countries, is expected to post a modest decrease of only 0.1% in 2019”, Allied’s analyst said.
“However, with industrial prospects being relatively positive and given that prices are likely to be sustained close to today’s levels, steel demand should rebound to around 0.6% in 2020. From the side of iron ore producers, further investing has been announced from key players recently, signaling a positive outlook. Rio Tinto has approved the investment of the Western Turner Syncline Phase 2 project in Australia, which will facilitate in the life extension of one of their key mines. At the same time, BHP Group has also decided to invest in its South Flank mine in Australia, a facility that will be ready in 2021, expanding as such their production. On the other side of the world, another key player, Vale has announced that its iron ore sales will reach 307-312 million tonnes for 2019, while the Brazilian miner expects to increase its production by another 30mt next year. Translating all these on to shipping terms, mixed signals will be dominating the market for 2020. The positive prospects regarding improved iron ore and steel demand are countered by a significant number of newbuilding vessels that are expected to be delivered in 2020 (approx. 120). This is a 36% rise compared to the number of vessels that were originally anticipated for 2019. As such, the level of demand growth will be ever more crucial for how the freight market and will be able to sustain its current earnings over the next 12 months”, Vamvakas concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide