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Beijing’s about-turn on real estate investment is not yet bearing fruit and, after 4.5% GDP growth in the first quarter of this year, the real economy in China is struggling to get into gear. Caixin’s PMI is in contraction territory at 49.5 points in April. China’s steel market is slowly reacting to cheaper iron ore, priced around $110 at the end of May compared to $137 a year earlier and $202 in May 2021. Analysts at Steel Mint say that global iron ore exports were 340m tonnes in Q1 2023 compared to 339m tonnes in Q1 2022. They suggest that Australian exports were up 2% year-on-year in Q1 at 205m tonnes, Brazil up 3% at 75m tonnes and India up 86% to 12m tonnes, but South Africa was down 11% at 15m tonnes and Canada was also down 4% at 11m tonnes. Chinese steel outfit Mysteel suggests that mills are still adopting on-demand procurement and a low-inventory strategy which offers little encouragement for capesize owners. SSY’s new rockstar head of research Roar Adland tweeted on May 25, “A terrible Baltic Capesize index and an intra-day recovery on FFAs is usually a good sign…. Iron ore flows, particularly ex-Brazil are good. Just sayin”. That capesize index stood at 1,683 points on May 25, down 15% month-on-month. The C5 capesize average for May to date is $15,375, a bit up on $13,878 for April but only half its May 2022 average of $27,449. Freight is $8.36 on C5 (iron ore Australia to China) at the time of writing, having averaged $8.85 for the month of May. Rates per tonne from Brazil are $19.49 as of May 26 compared to a month-to-date average of $21.49. The lack of volatility is visible in the overall BDI which has hovered around 1,450 points for three months now In fact, rates are down across the board in May. The Baltic Capesize Index was 1,683 on May 25, down 15% compared to April 25. The panamax index was down 33% at 1,119; the supramax index down 22% at 946 points, falling below 1,000 points for the first time since February. The handysize index stood at 588 points, down 12% on May 25 compared to April 25. In the panamax markets, the P5TC sits at $10,072, down 33% in a month. The May average of $12,108 is only 43% of the May 2022 average of $28,785. The worst performing panamax markets in May were P5, a South China Sea round trip, which fell 46% month on month as of May 25 to stand at U$7,482. P1A, a trip from western Europe to the USG, fell 41% to $7,201 on May 25 compared to April 25, confirming that the market malaise is not confined to Asia. Global coal production and trade reached record levels in 2022, according to a recent World Bank report. If there is an El Nino hot year in 2023 – and the weather across Southeast Asia and South Asia is very hot already – then increased electricity demand could lead to higher coal use and more coal trade, which would support panamaxes. However, the World Bank does warn: “Expected short-term increases in coal demand could be compromised by economic takeoff in China failing to materialize and slower-than-expected global growth.” Supramax earnings fell less sharply but to little consolation as the fall was widespread. Rates from China to West Africa continued to slide, losing 28% in the month to May 25 to stand at $8,250. Second worst performer was the South China Sea round-trip, down 25% to $7,294, while Atlantic rates fared little better, with westbound transatlantic TCEs falling 18% to $10,143 in the 30 days to May 25. Daily hire on voyages from West Africa via Brazil to Europe were down 17% to $10,684 over the same period. In the handysize market, the Atlantic has been slowest, with rates from Europe to Latin America down 27% to sit at $7,671 on May 25 and rates from Europe to North America down 22% to $10,107 over the same 30 days. The handysize 7TC average for May so far is $11,248 compared to $11,703 in April and $11,849 in March. Rarely has a dry cargo freight market displayed so little volatility. Indeed, that lack of volatility is visible in the overall Baltic Dry Index which has hovered around 1,450 points for three months now. Last month we suggested that this is a market in need of direction. That is even more the case now when, even in weaker years, earnings have usually begun to move upwards during May. If the market trends down in June, some traders will begin to wonder if it will recover at all this year. Perhaps the recent increase in newbuilding ordering will come to a halt if confidence falls – but then, most orders won’t deliver until 2025 so if this is the cyclical dip, it should be a good time to order ships even if prices are near historical peaks.

Dry cargo feels flat

If June does not kick on then investors will be right to walk away from this sector.

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