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Optimism in the dry bulk sphere

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Dry Bulk,

Key variables make for a well-argued case that the strong sentiment in the dry bulk shipping market is here to stay, reports EastGate.

Capes benefitting from China’s hunger for iron ore

Strong Chinese steel output has been a fact: China produced 94.02 million t of crude steel in March (up 19% from a year earlier) and, therefore, demand for the raw steelmaking ingredient of iron ore has also been supported. The infrastructure-intensive governmental stimuli put forward to assist in Chinese economy’s rebound post-COVID in tandem with increased manufacturing activity and improved profit margins for steel mills, all point to the same direction.

The benchmark iron ore price has surged past the US$180/t, hitting a 10-year high, also highlighting the strong demand for the alloy; a trend, further enhanced by the depleted domestic steel inventories which in mid-April stood at 17.9 million t, shrunk by 20% compared to mid-March figures.

How that translates into shipping terms is rather obvious: Capesizes, being the primary vehicles that transport said commodity, are directly benefiting from China’s almost insatiable demand for the red alloy. On Wednesday, the BDI peaked to a 10-year high, propelled by strong Capesize sentiment. The asset class reached the average daily TC earnings of US$33 290, supported by increased Brazilian ore shipments.

Further, China’s efforts to secure natural resources by diversifying its ore suppliers, as a byproduct of the sour Sino-Australian trade relations, has been quite clear, especially in its investment initiatives in Guinea where China has a direct or indirect stake in all four blocks of the Simandou field. The projects are not expected to be completed prior mid-decade but in any case, are suggestive of two things: first, that China expects to maintain its need for high-quality imported iron ore (and that is big news given that the country absorbs more than 70% of the global seaborne iron ore volume) and second, when the projects will indeed materialise the iron ore trade is likely to become even more long-haul, thus assisting the tonne-mile demand.

Sub-cape segments also buoyed

As for the smaller asset classes, sentiment there also remains positive attributed not only to the usual spillover effect from the larger boats, but also to the strong grain demand which has thus far lent significant support to Panamax and Supramax bulkers. Chinese soybean imports were 7.77 million tonnes last month, an 82% yearly increase.

The strong demand for the oilseed, mainly used as livestock feed, is apparent as is the need for inventory restocking, which both suggest that the long-haul grain trade will remain a key variable to the sub-Cape segment’s earnings. Panamaxes currently earn a TC average of US$24 206/d, mainly gaining steam by the strong Atlantic demand. 2Q21 has maintained the positive drive which the first quarter showcased; grain demand has been en vogue for a while now and the trend is expected to walk us through some impressive fixtures over the next few months, especially on occasions when positional tightness will occur.

Despite Brazil’s rain-induced delayed harvest, the US is are benefiting from Chinese crushers’ soy needs, leading to some notable figures which go against the usual seasonality patterns: the Asian nation imported last month 7.18 million t of soybeans from the States, marking a 320% y/y increase.

Further assistance from a healthy coal trade is also in place for both Cape and Panamax vessels with South African coal exports up 63% w/w, thus offering more options to the brave ballasters. Moreover, low domestic Chinese coal supply gives ground to the speculation that higher seaborne thermal coal volume will be transported as we approach the peak power demand season.

Full steam ahead

Always accounting for the usual volatility which is of course an inherent element of the freight market, the bigger picture for dry bulk shipping rates remains positive in the short to mid-term. Robust demand for major dry bulk commodities, the need for stock rebuilding, the decade-low orderbook, market’s confidence depicted in the forward curve, environmental challenges, energy efficiency standards and their technological requirements, as well as forecasts for improved fleet utilisation rate over the next couple of years, all paint a positive picture for dry bulk shipping players to finally capitalise on a long-awaited market turnaround.

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