Drewry: Dry bulk charter rates to recover beginning in Q2 2018

Increased Asian iron ore demand is expected to lead to “a bright future” in the dry bulk charter market, according to Rahul Sharan, lead dry bulk shipping analyst for the London-based global shipping consultancy Drewry.    Dry bulk shipping charter rates should recover beginning in the second quarter of 2018 due in part to strengthening Asian iron ore demand, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.
   “Chinese steel production is expected to pick up pace at the end of winter, in the second quarter of next year, by which time production curbs will have relaxed,” Drewry explained in its analysis. “Strong infrastructure and construction activities will further strengthen steel consumption.”
   Meanwhile, the report says, the Chinese government is shuttering inefficient and highly polluting mills, which is expected to pave the way for the production of high quantity steel, strengthening demand for high-grade imported ore. Growing grain consumption in African and Asian countries will support grain trade, Drewry said.
   The report also states that the Chinese government is planning to invest heavily in infrastructure development to revive the 16th century silk-route from China through Central Asia and the Middle East to Europe, thereby extending to the maritime route linking China to Southeast Asia and East Africa by sea.
   The development would involve building new ports, roads, railways, power plants and pipelines.
   “This highly ambitious project will create strong tailwinds for dry bulk shipping, taking into account the massive planned infrastructure development undertaken by the Chinese government,” which according to Drewry, could cost up to $8 trillion USD by 2020.
   On the supply side, the dry bulk fleet is being predicted to grow at a moderate pace in the coming years, with improving charter rates reviving the interest of shipowners in the newbuild market.
   However, Drewry warns that fleet growth is expected to remain in check, partially because of a thin orderbook. A big chunk of the orderbook will be replacement tonnage, the analysis states.
   A short-term downside is also being predicted because the Chinese government, in an effort to tackle pollution caused by high coal consumption in the winter months, is planning to cut down steel production between November 2017 and March 2018.
   This measure is expected to directly impact demand for iron ore in the short term, because under the proposed policy, the government could impose a 50 percent cut on existing steel production of 40 million tons, a goal that Drewry said looks highly ambitious.
   “We believe a 25 percent cut is more achievable, in which case there would be a reduction of 20 million tons of steel production, which as a result, would reduce demand for iron ore,” Drewry’s lead analyst for dry bulk shipping, Rahul Sharan, explained. “Even though iron ore demand will remain strong in other Asian countries, such as South Korea and Taiwan, we do not expect this demand to be strong enough to offset the impact of reduced demand from China.” 
   “The next few months notwithstanding, a bright future is expected for the dry bulk charter market, providing solace to shipowners and shipyards alike,” Sharan added.