Ahead of attending tomorrow’s inaugural Geneva Dry, Plamen Natzkoff, associate director covering dry bulk for Maritime Strategies International, sets the scene in the markets.
Looking back on the strong performance of the dry bulk freight markets through Q1, expectations for the rest of the year – when trade volumes can be expected to pick up further – will be for further positive momentum.
This sentiment will indeed be supported by growing evidence that a broad-based improvement in economic activity is underway across key economies. But, the outlook is typically nuanced.
MSI is particularly encouraged by last month’s snap-back in China’s economic data, with the country’s Manufacturing PMI moving back into expansionary territory.
While we would like to see this positive development persist for several more months before we are able to confirm renewed strong momentum, the economic signals are turning incrementally more constructive.
However, some of the details emerging in recent months call for caution as far as the dry bulk market is concerned. In particular, the sectors of China’s economy which are currently providing the greatest contribution to manufacturing growth are sectors which require relatively little dry bulk commodities – namely, photovoltaic cells, electric vehicles and other power generating equipment.
By contrast, the sectors which have traditionally provided for the lion’s share of dry bulk commodities demand – steel, pig iron, cement – have lagged and are among the worst performing industrial sectors in the country.
Of particular concern for the rest of 2024 will be the outlook for the coal trade, which accounted for most of the increase in trade volumes last year. On one hand, Chinese import demand is expected to decline considerably as the country’s hydro power generation recovers from a two-year slump.
In addition, the economics of Russian coal exports are becoming increasingly tenuous. With Russian exports now pricing at a significant discount to benchmarks, the rapid decline in global coal prices is putting significant pressure on Russian exporters. In an environment where the importers of Russian coal are increasingly distant, stronger freight rates need to be reflected in further reductions in FOB prices. The outlook is for a significant drop in Russian coal exports this year.
The contrasting performance between different economic sectors is not the only factor which will likely determine the relative fortunes of the different sectors in the freight market. The timing and location of commodity trade volumes will be especially important for freight rates between sectors as we progress through the year.
While the capesize market outperformed significantly during Q1, some of the main supportive factors are likely to have been relatively short-term in nature. Unseasonally strong iron ore exports from Brazil, for example, are unlikely to be as pronounced going forward.
In the panamax market, delays to ECSA grains exports have cut short a rally that started towards the end of Q1, for now. And while coal volumes are likely to disappoint compared to recent years overall, the timing of fresh grains orders could yet hold the key to much stronger panamax rates.
But while both the supramax and handysize markets have been relative laggards in Q1, their positive momentum has continued through the start of Q2, with growing support from strong demand for a range of minor bulk commodities. The timing of additional grains volumes could yet prove a boon for those vessels.
