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‘The Dry Bulk World’ – Article Preview

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Carlo Robiati, Alexandre Claude, Rachna Rana, Giorgos Gerakakis, and Steven Devery, DBX, review the current state of the dry bulk industry, provide some critical supply chain analysis, and emphasise the importance of data to paving the industry’s way forward.

‘The Dry Bulk World’ – Article Preview

Dry bulk commodities consist of a broad range of natural resources that are critical to the fully interconnected modern world: coal, iron ore, grains, bauxite, cement, alumina, among others. The dry bulks coal and iron ore are essential base materials for the global production of electric energy and steel. Dry bulk commodities are generally transported by trucks, trains, barges, and ships from upstream production (e.g. mines, farms, etc.) to midstream operations (e.g. seaports, river terminals, train stations, etc.), before they are moved to downstream consumption (e.g. steel mills, power stations, flour mills, etc.), and then eventually distributed to the end user via the marketplace.

Due to the increasingly large demand for iron ore, large iron ore handling infrastructures and terminals are becoming critical nodes in the international shipping network. But, as important as they are, acting as buffer areas for temporary storage, they are also massive structures that usually require power stations or raw material refineries in their close vicinity. It is striking how the complicated scheduling processes of dry bulk terminals remain insufficiently comprehensive and lacks automation and extensive published research. Until now, many stockyards’ scheduling strategies are still manual. Consequently, stockyards’ low efficiencies have become the main bottleneck that restricts the materials throughput.

Between 2000 and 2019, the export volume of total iron ore increased almost 2.6 times. According to research performed by UNCTAD, major dry bulk commodities (iron ore, grains, and coal) accounted for 29% of total maritime shipments, with 40% of these shipments being iron ore. DBX estimates the total size of the seaborne dry bulk market to reach approximately 5.4 billion t in 2022, with iron ore being the biggest commodity, followed by thermal coal, grains, and metallurgical coal. DBX expects the dry bulk market to rise at a compound annual growth rate of 5% in line with the growth in world population, industrialisation, and urbanisation.

Growth in thermal coal is expected to be muted as the world strives to decarbonise its power generation. However, iron ore and steel are at the centre of the energy transition, and there is a fast-growing market for both – the world needs steel to build the renewable infrastructure that will decarbonise the economy. Solar photovoltaic, wind, and geothermal are more mineral intensive relative to fossil fuel technologies. For example, building a 100 MW wind farm that will provide electricity for 75 000 homes will require approximately 19 000 t of steel, or 30 000 t of iron ore. This will increase trade flows for both iron ore and metallurgical coal. DBX’s modelling also indicates that grains and other minor bulk commodities will grow at a robust rate.

Supply chain analysis

Dry bulk commodities are opaque and characterised by poor data quality and low update frequency. Consider China as an example: its production of coal and iron ore represent 47% and 28% of the world’s production, respectively (according to the EIA and World Steel Association),and yet national statistics are released only on a monthly basis with a regional granularity (over 100 million people live in some regions of China). Similar issues exist with most producing countries, such as: Russia, Indonesia, South Africa, and Brazil.

Available solutions are not satisfactory – they are either too expensive, lack geographical coverage, and/or have issues with regards to data quality and frequency.

The dry bulk commodity market can be segmented into three main types of players:

  • Producers: Mining companies such as Vale, BHP, Rio Tinto and Glencore belong to this segment, but also farmers.
  • Physical trading houses: These are privately owned companies that specialise in transporting commodities, leveraging their network, and logistics expertise. Companies such as Cargill, Vitol, Mercuria, and Trafigura belong to this segment.
  • Industrials and utilities: They are usually large and listed companies that handle flour, electricity, steel, and aluminium. Companies such as ArcelorMittal, Tata, Uniper, and Chinalco belong to this segment.

This is a preview of an article that was originally published in the Winter 2022 issue of Dry Bulk Magazine. The full version can be read here.

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Read the article online at: https://www.drybulkmagazine.com/shipping/23122022/the-dry-bulk-world-article-preview/

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