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Editorial comment

As 2020 comes to an end, it wraps up 365 days since the implementation of the global regulation on sulfur emissions from ships. Kicking into effect on 1 January this year, IMO 2020 has placed a limit of 0.5% (down from 3.5%) on the sulfur content of ships’ fuel oil, making it one of the most dramatic fuel regulation changes to ever be implemented.

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The talk of the town in 2019, analysts had forecast a tough year in 2020 for the shipping industry, due to the heavy impacts caused by this mandatory limit. There were some considerable price changes predicted, with very low sulfur fuel oil (VLSFO) prices spiking but heavy sulfur fuel oil (HSFO) prices bottoming out; moreover, there was to be new demand for diesel (an LSFO), and new profits for refiners as refineries cash in on the new regulations. Economically, it was understood that consumers would bear a large portion of the burden placed on the industry as carriers passed along costs, with Goldman Sachs reporting that a full compliance scenario could see consumer wallets in 2020 hit by US$240 billion.

During the last quarter of 2019, all forecasts were occurring as expected, but what had not been forecast for 2020 – the year where all eyes were going to be on IMO 2020 – was the arrival of a global pandemic, COVID-19, which threw all predictions out of the window. The original concern for cost consequences of IMO 2020 has not played out, in fact, the pandemic has dropped marine fuel prices lower than experienced prior to any talks of IMO 2020. According to S&P Global Platts data, HSFO prices averaged US$421/t in April 2019 whereas VLSFO prices in April 2020 were at lows of approximately US$201/t.

Essentially, nothing really went to plan in 2020, but there are already glimmers of light for a more fruitful 2021 – aside from the obvious concern that the delayed impacts of IMO 2020 arise a year late and dampen a post-COVID recovery for the industry. Whilst 2020 saw the highest new-build deliveries since 2016 – totalling 42.2 million DWT, so a year growth of 3.4% following 12.5 million DWT of ships being scrapped – 2021’s dry bulk orderbook is not expected to be particularly full, which is actually advantageous for market recovery as only a minor increase in demand is needed for positive figures to be seen.

Further, China continues to carry industry recovery, which is detailed thoroughly in BIMCO’s report on p.10. The country’s appetite for iron ore and grain is supporting large carriers and Panamax freight rates. However, of fundamental importance is the question highlighted by BIMCO regarding how much longer China will be able to continue single-handedly providing the volumes needed to keep the dry bulk market at profitable levels. What happens when China, the prop for the dry bulk industry, cannot retain this high intensity? For instance, geopolitical tensions have the potential to disrupt this prop, since an informal ban is currently in place on Australian coal entering China, thus China’s cargo flows are already disturbed. There have been reports of over 100 vessels being anchored off the Chinese coast, unable to unload, with some ships waiting over 20 days. How this disagreement continues will be one to keep an eye on.

With the curtains finally closing on a long and tumultuous 12 months, the Dry Bulk team would like to thank you all for your support throughout the year, and we look forward to continuing to provide you with current and informative market news and developments as we move into 2021. Best wishes for a healthy and prosperous holiday season.