Beijing opens cash reserves to the relief of dry bulk owners

Back in 2008 as the global financial crisis gripped the world, China’s government announced a vast RMB4trn ($586bn) stimulus package, aiming the money at infrastructure spending on items like railways and airports. The announcement came as China’s president Hu Jintao set off to meet US president George W Bush for a summit, and after he discussed by phone with president-elect Barack Obama how China and the US could cooperate to resolve the crisis. Fifteen years later, how things have changed. The world is in political rather than economic crisis. China’s collapsing real estate market has not yet infected other nations like America’s did in 2008. Chinese retail sales are lagging pre-pandemic trends as employment and wage growth remain muted, while industrial production is racing ahead, driven by incremental subsidy for state-owned enterprises and exporters. Industrial output for April has been reported as growing 6.7%, the fastest for five years, while consumer spending was down 2.3% in April. Property investment in China in the first four months of 2024 fell 9.8% from a year earlier while new home prices dropped at the fastest monthly pace in more than nine years. Beijing has reacted by announcing RMB300bn ($42bn) of central bank funding (and potentially RMB500bn) to buy up unfinished and unsold properties from developers. The central bank also cut the minimum deposit for first time buyers by 5% to 15% and for second home buyers from 25% to 20%. The announcements amount to the biggest single stimulus package since the global financial crisis and came as Vladimir Putin visited Xi Jinping to cement their anti-American alliance. Zhu Ning, professor of finance at Shanghai Advanced Institute of Finance, says that “this is a little bit similar to the bailing out of financial institutions going through the Great Financial Crisis.” This is good news for the bulk carrier market which relies on China still for more than half of overall demand. The capesize market has benefited first and most, with the Baltic Capesize Index average for May so far rising to 2,884 points from 2,416 in April. In fact daily TCEs peaked earlier in the month. On the Brazil to China iron ore voyage, the peak was $27,723 on May 8, before rates retreated to $22,620 ten days later. On the higher volume C5 route from Australia to China, rates peaked at $29,365 on May 8 but also fell back to $22,180 on May 18, still 20% higher than they were at the end of April. Iron ore prices have increased to $118.15 per tonne for June delivery in China, where MySteel data shows steel output was 2.37m tonnes in the week to May 17, its highest since November 2023. Capesize bulker owners are optimistic. US listed cape operator Seanergy has issued record dividends after converting a Q1 2023 loss of $4.2m into a Q1 2024 profit of $10.2m while forecasting average daily earnings for Q2 of $26,400. Panamax earnings averaged about $17,300 per day in the first 18 days of May, basis Baltic Exchange data, compared to around $16,150 in April and $18,150 in March. The best performing route was the South China – Indonesia round voyage to load coal, on which rates added 19% to reach almost $17,000 on May 18. China imported 97.4m tonnes of coal in Q1, up 17% on Q1 last year, with Q2 imports also looking hot as China adds electricity generating capacity of all kinds while it waits for its hydro capacity to recover from last year’s droughts. The north Pacific round voyage added 13% in May to date, reaching $15,100 on May 18. Conversely, the Atlantic suffered reversals in May after a bumper start to 2024. Panamaxes sailing on an Atlantic round trip from and to Europe face downward pressure on earnings which fell 12% to $12,900 a day on May 18. Day rates from Europe to Asia fell 5% to $25,100 or so. The South American grain season is drawing to a close with TCEs down 2% so far in May at $18,656 though they had risen during May to $21,000 on May 11. In the geared supramax bulker markets, the S10 average was $16,100 for May to date compared to $14,900 in April and $14,650 in March. However, it has been a bumpy ride with rates rising for a week then losing ground to sit mostly at levels beneath where they ended April. The indices are of course only an indication of market direction; not every operator earns exactly the daily index. Thailand-based supramax operator Thoresen Shipping, for instance, reported this month that its supramaxes earned $15,932 per day in Q1, compared to the Baltic supramax Q1 average of $12,961. Freight rates into China performed best so far in May, with 63,000 tonnes of coal cargo from South Africa attracting $18,575, some 4% more by May 18 than on April 30. But Atlantic export volumes have been flat, leading to falling rates. The TCE from the US Gulf to Qingdao is down 10% so far in May to $23,000 while supramax voyages from the Black Sea to East Asia are also fetching 10% less as of May 18, being $25,500 per day, reversing April’s gains. Supras loading in western Europe for the US Gulf were earning around a fifth less on May 18 than on April 30, some $10,800 compared to $13,600. The handysize bulker HS7TC average for May to date is 12,783 compared to $13,301 for April and $13,888 for March. The slide has been greatest in the Atlantic with rates from north west Europe to the east coast of South America down 24% so far in May at $8,136 while the reverse route is down 16% at $15,900. Handy bulker rates from northwest Europe to the US Gulf are down 16% at $11,100 and going the other way they are down 15% at $9,900. Mineral shipments from Australia to Northeast Asia are earning 4% more at $14,300 per day while the north Pacific round voyage from China is up 2% a day at $13,350. The Handysize Index so far in May is down 8% at 690 points.

Beijing opens cash reserves to the relief of dry bulk owners

Rates rallied in May on the back of some much need stimulus news out of China.

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