After falling rates and months of bad news, the dry bulk shipping community believes it has seen positive signs for the near-term markets. That’s despite some of the benchmark dry bulk seaborne volume and freight rate numbers taking a deep, deep dive. And, on analysis, the dry bulk shipping markets are currently really mixed-up.
Year-over-year numbers for the dry bulk shipping markets are mostly written in the reddest of red inks, reveals the latest (end of April) research note from Breakwave Advisors. The company is the manager of the Breakwave Dry Bulk Shipping exchange traded fund (NYSE ARCA: BDRY).
China coal imports are marginally down year-over-year by 1.1 percent to stand at 75 million tons on a year-to-date basis. The country’s year-over-year soybean imports are down 14.3 percent to stand at 17 million tons year-to-date. China’s iron ore imports are down by 3.6 percent year-over-year to stand at 261 million tons year-to-date, Breakwave reports.
Year-over-year dry bulk shipping rates are now quite underwater. The Baltic Dry Index (Average) is 789 year-to-date which is down just over 32 percent year-over-year, Breakwave reports. Capesize shipping spot rates on a year-to-date average are $8,099 per day, which is down 35.8 percent year-over-year.
“Capesize” refers to the size of a dry bulk vessel, which is expressed in deadweight tons, or dwt. Deadweight refers to the weight-carrying capacity of a ship and it is a metric measurement. One deadweight ton is equivalent to 2,204.6 U.S. pounds.
There is no official definition of what constitutes a capesize vessel but the industry consensus is that anything over 100,000 dwt fits the bill. That said, iron ore-carrying capesize ships are more typically in the 180,000+ dwt range.
Although the overall numbers don’t look so good at first sight, Breakwave reports that short-term dry bulk shipping momentum, sentiment and fundamentals are, in fact, all positive.
Despite everything, Breakwave says that dry bulk rates are on a “path to recovery.”
Much appears to hinge on Brazil.
Last week, the Western Australian capesize market received a “considerable push” according to ship broker Braemar ACM, in its end-of-April, Weekly Scope report.
Although Braemar attributed last week’s push on capes to the onset of Asian public holidays, it added that “the sentiment from Brazil remains positive.”
Supply volumes of iron ore from the Latin American country appear to be in recovery after the dreadful and tragic Brumadinho dam disaster in January, which has greatly reduced iron ore production so far in 2019.
“Although production still is far from reaching pre-accident levels, we anticipate that most of the unrelated to accident mines will slowly resume operations,” Breakwave Advisors says.
In a recent research note, ship broker Fearnleys noted that there has been more period activity in the capesize market, which it expects to “improve a bit further.” But, it adds, “the big gains will have to wait until we see stronger activity out of Brazil.”
If Brazilian iron ore volumes continue to increase then Breakwave expects a “counter-seasonal rally” to develop in the summer. And, it adds, with the introduction of the IMO 2020 low-sulfur fuel regulations approaching, Breakwave “expects significant short-term improvements in rates.”
Longer-term there are a few potentially contrasting factors that may influence the dry bulk shipping markets. Or they might cancel out.
Dry bulk shipping consultancy Commodore Research notes that, in the year to March, the dry bulk fleet has grown – 92 new ships had been delivered and 29 existing vessels were scrapped – a net addition of 63 ships. An increase in the supply of tonnage would, presumably, put downward pressure on freight rates.
A countervailing force is that the global grain trade remains “encouraging and at present is still one of the most bullish segments for the dry bulk market,” according to Commodore.
Global soybean, soy meal and coarse grain exports are also forecast to increase. Commodore notes forecasts that Brazil’s and Argentina’s coarse grain harvests will collectively total 154 million tons, a 24 percent increase year-over-year. That would lead to coarse grain exports of 64.9 million tons. There’s also an 8.2 million ton increase forecast from the former Soviet countries.
“Panamax” refers to the weight-carrying capacity of a class of ships, typically in the 80,000 dwt range.
Average year-to-date Panamax spot rates are $7,472 per day, which is down 34 percent year-over-year, according to Breakwave Advisors.
However, on a weekly view, as provided by Braemar ACM shipbrokers, the Panamax markets were flat again last week because of the upcoming holidays. Panamaxes were being listed at $6,500 per day levels on the Indonesia-China coal routes. North Pacific-bound cargoes were “weak” Braemar said, although noting that rates were being fixed at $7,500 per day.
These are the handysize (up to 40,000 dwt), handymax (40,000 to 50,000 dwt) and supramax (50,000 to 60,000 dwt) size vessels.It was a mixed bag of activity for the smaller vessels last week, with Braemar ACM noting activity in some but not all areas.
Larger supramaxes on the Singapore-China route were being fixed for $10,000 per day and for $9,000 per day on the Singapore-India route. “Owners are asking five digits even on average Supramaxes,” Braemar says.
Unfortunately, the Asian market “seems to be going nowhere” brokers at Braemar ACM said, with rates of $9,000 per day for north-Pacific bound vessels. The company comments that “more and more ships” are heading north on the Indonesia-China coal run.
“In summary, a mixed bag “east of Suez,” sentiment is mainly positive but we expect some challenges in the short-term with all the holidays in the Far East approaching,” Braemar ACM said.
The small ship market in southeast Asia is also a bit mixed too. Braemar ACM described both as being “subdued” and with a “picked up” sentiment. This apparent contradiction appears to have the same source, namely the upcoming Asian public holidays. Rates for 28,000 dwt handysizes improved by at least $300 per day on the Australian round voyage to $6,000 per day. While the smaller “handies” have been experiencing an improving market, the market for the larger handies (38,000 dwt) is described as being “unclear” and “position- and date- oriented.”
In summary, for the smaller vessels, “market sentiment remains positive for the coming two weeks; however, a significant push in rates is not expected due to the [public holidays],” Braemar ACM says.