Dangerous dry bulk trade forecasts

Dangerous dry bulk trade forecasts

Regular contributor Jeffrey Landsberg from Commodore Research warns he has been seeing some bizarre trade forecasts lately. “I can’t remember the last time some forecasts were ignoring – to this degree – just what the world is showing us,” he tells Splash.

Very bullish dry bulk forecasts have continued to be released this year — but we continue to urge great caution. Catching our attention, in particular, recently have been some forecasts stating that dry bulk trade is likely to grow by anywhere from 4% to 4.5% this year. A breakdown of trade by cargo type has not been included with these forecasts, instead such robust overall trade forecasts are simply stated.

In our view, forecasting that dry bulk trade will grow by 4% to 4.5% this year is ignoring what is actually occurring in China and throughout the rest of the world. Chinese iron ore imports contracted on a year-on-year basis last year for the very first time this decade, even though China’s steel production set a record last year. Chinese coal imports have also now contracted on a year-on-year basis for two consecutive months, and most recently in December China’s domestic coal production climbed to a high not seen since 2015. Overall, China’s industrial production continues to fare relatively well (compared with many major economies), but China’s industrial imports have nevertheless been contracting.

Where our concerns also remain in China is that the consumer sector continues to show great weakness. As we have been examining in our research during the last several months, we are of the view that Chinese consumers are already likely mired in a recession. Also remaining concerning to us is that much of the rest of the world continues to fare poorly. In the United States, for example, the housing market remains mired in a significant contraction. Most recently, existing home sales in the United States totalled only 4.99m last month, which marks a year-on-year contraction of 10.3%. Existing home sales in the United States have now fallen on a year-on-year basis for ten consecutive months, and December’s most recent contraction marked the largest contraction seen since May 2011.

Also troubling is that industrial production data has continued to show troubling weakness throughout several major economies. Monthly EU industrial production data most recently showed a year-on-year contraction of 3.3%, which marked the largest contraction seen since November 2012. In addition, Brazilian industrial production data most recently showed a year-on-year contraction of 0.9%. Also troubling is Indian industrial production data most recently showed year-on-year growth of only 0.5% and South Korean industrial production data most recently showed year-on-year growth of only 0.1%.

Overall, the world is facing real distress — and in our opinion, forecasts stating that dry bulk trade will grow by 4% to 4.5% this year is far too bullish. We continue to see a global economy that is much weaker than is often being reported.

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6 Comments

  1. Avatar
    Dagfinn Lunde
    January 23, 2019 at 8:25 pm

    Many good points in this article!!

  2. Avatar
    Martyn Benson
    January 23, 2019 at 11:36 pm

    Completely agree – it may be that a few speculators and hedge fund managers are practicing their wishful thinking and trying talk up the markets but the simple indicators and anecdotal news reports seem all to be saying that 2019 and 2020 could give us all a rocky ride.
    Sadly, our maritime world is increasingly lead by consultants and people with next to no knowledge of shipping or world trade instead of listening to those who have seen the cycles over decades and have an instinct for what is more likely to happen.
    Call it common sense if you will.

  3. Avatar
    SIMON WARD
    January 24, 2019 at 7:56 pm

    Thank you Jeffrey, and a breath of fresh air. However it’s not all about industrial production and imports, the supply side counts too. If it’s of any consolation back in November I published this. I think it complements rather than contradicts your point of view.

    https://www.linkedin.com/feed/update/urn:li:linkedInArticle:6471765583758192640/

    I agree totally with your comments on analysts however.

  4. Avatar
    George Cody
    January 25, 2019 at 12:50 am

    An important read as always.

    Y-O-Y Chinese coal imports were down the past 2 months. However, annual import quotas were reached in November, and domestic coal production filled the void in December. Has there been a Y-O-Y net increase in consumption in November and December?

    1. Avatar
      Jeffrey Landsberg
      January 25, 2019 at 11:22 am

      Hi George. I appreciate the comment. Chinese thermal coal burn rose year-on-year by around 7.9% in November and December. I am going to shoot you an email too.

  5. Avatar
    Erik Gates
    January 26, 2019 at 10:53 am

    Indeed….very few sell-side analysts are willing to admit we’ve possibly seen the peak for this cycle in dry bulk. That notion seems to be resonating now….exactly what Oaktree said months ago….when they sold 1/3 (+/-) of their SBLK stake. At that snapshot-in-time, several sell-siders anticipated a peak in SBLK north of $30. Hmm…
    I wish I could view these prices as a terrific buying opportunity. Simply stated, I can’t.