According to BIMCO, 2017 was a year of change. Much of it for the better, but a cautious approach is still needed for 2018 to maintain the progress already achieved.
Economic growth has increased in Europe, Asia and the Americas since mid-2016, and the IMF now expects the global GDP growth rate to raise slightly in 2018 to reach 3.7%, up from 3.6% in 2017.
In 2018, the dry bulk sector is likely to improve the fundamental market balance further, if operational speeds do not increase. For the container shipping sector, the improvement in 2017 will carry on into 2018, where fleet growth rate seems to match demand growth, and as a result no big freight rate changes are expected to lift earnings. For oil tankers, there is a potential upside in low fleet growth for both crude oil and oil product tankers. The growth in demand - coming from increased oil consumption and a return of more price arbitrage-driven trading activity - depends on a better-balanced oil market. BIMCO expects that the world’s oil demand will only marginally outstrip the world’s oil supply, and this will be a negative factor for the oil tanker market.
China is at the centre of shipping activity. Being the one driver of dry bulk shipping demand growth, China has also taken a giant leap in hiking crude oil import levels during 2017. By introducing robotics into its enormous manufacturing sector, China aims to remain the world’s top exporter of containerised goods too. There is a lot of competition in that field, and maritime supply chains will change a lot over the coming years.
The shipping industry has adapted quite well to a lower level of demand growth over the past couple of years. The next challenge is to understand that this is as good as it gets, and to avoid wishful thinking that demand levels will increase significantly – as that will not happen. The biggest risks to the forecast remain on the downside, meaning that fleet could grow too much or demand too little.
Dry bulk market outlook
BIMCO noted that it did expect markets to improve in 2017, but the extent of it was a positive surprise. The shipping association did not expect that 2017 would see a demand growth rate of 5%, nor a fleet growth 3.2%. A much weaker growth rate was forecasted for both. However, Chinese demand has exceeded expectations on the upside and as that happened, fleet growth exceeded expectations on the downside, denting some of the upside potential.
As the rest of the world either imports a steady amount of dry bulk commodities or slows down its imports – China’s importance to the market becomes even more evident. Once again it was the steel industry dominating the development. Iron ore imports were up by 7% on 2016, as steel production grew by 6.3% (2017-9M).
At the end of 2017, BIMCO continued its “Road to Recovery” market analysis, with the third update outlining the projected path towards a profitable industry. It highlighted that 2018 could become the first year since 2011, with the industry returning a profit, but the industry shouldn’t be too hasty. It is mostly in the hands of the shipowners, as fleet growth may increase as little as 1% if handled with care. As BIMCO’s expectations for demand growth in 2018 is slightly higher than that, fundamental improvements will follow if slow steaming is kept up.
For 2018, the challenge is for owners and operators to maintain slow steaming. BIMCO expects the supply-side to grow by around 1% in 2018 (3.2% in 2017E).
Read the article online at: https://www.drybulkmagazine.com/special-reports/08012018/bimco-caution-required-in-2018/