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China reported 4.5% GDP growth for Q1, but the bulk carrier freight markets have responded cautiously. On capesizes, Australia-China daily earnings averaged $13,878 in March and $15,374 in April basis the Baltic Exchange reference vessel, an increase of almost 11%. Per-tonne freight rates however were $7.65 on April 19, down from a peak of $9.10 on March 20, the higher TCE reflecting higher bunker costs. Freight rates from Brazil moved from$20.62 to $21.57 over the same period. The forward curve has moved into a shallow contango with May quoted at $18,750, Q2 the same, Q3 at around $22,800 and Q4 at around $20,250. Western Australian iron ore loading was disrupted by Cyclone Ilsa but was quickly back to normal with no major damage reported by any of the big mining companies. Iron ore prices have increased this year from around $98 to around $128 on the back of improved Chinese economic activity but the Chinese government is said to be considering a steel production cap at 2022 levels to be imposed by the end of April. This may seem counter-intuitive given the drive to reignite real estate development but China’s steel industry still faces over capacity and has not yet met the governments’ demands to shut down older, more polluting plants and replace them with steel recycling plants, the target being to increase recycled steel’s market share from about 8% currently to 25% by the end of the current decade. In the panamax market, earnings rose in the month to April 18 for ships loading in Western Europe and heading west to the US Gulf or Asia via the Panama Canal, rising 1% to $13,510 and 6% to $24,605 respectively. However, earnings fell on all other panamax routes, most notably by 17% on the North Pacific round voyage. There is talk of Australian coal exports to China recovering, as prices are competitive with Indonesian coal and China is now importing from Australia again. But this has not yet turned into increased chartering activity; shipbrokers’ reports for April read like holiday almanacs with Western Easter, Orthodox Easter, Ramadan and Baisakhi all occurring in the month. The geared bulk carrier markets have been reported as balanced over the last month with holidays again carrying the can for a lack of movement. The Baltic Supramax S10 Average for March was USD 14,720 and USD 15,750 for the first 17 days of April. The Handysize 7TC was USD 10,300 for March and USD 11,570 for April. The geared market remains delicately poised, a bit higher than at the same time in 2019 and 2020 but lower than in 2021 and 2022. Despite the apparent lack of excitement in the freight markets (reflected in the FFA and in the time charter numbers), shipowners appear eager to fill up their portfolios with dry bulk tonnage. Asset prices are rising further as a result, leaving some investors to scratch their heads as to how anyone can make any money buying bulk carriers today. There would appear to be an expectation premium on existing tonnage basis the lack of newbuilding berths until around Thanksgiving 2025, with shipyards still gorged on LNG and containership orders. The theory goes thus: freight market levels are a consequence of the supply response to changes in demand. That supply response is typically lagged by up to two years. This time it is lagged by three years (and counting) so even if demand growth is slow (say, if the IMF’s April World Economic Outlook turns out to be right) supply growth cannot depress the markets, and a strong upward trend in earnings will result. The counter-argument says that the bulk carrier freight markets are too dependent on China, which is too dependent on real estate, which is dependent on an illusion of urban population growth. China is now 65% urbanised but the government is placing its bets and policy initiatives this year on more development. The urbanisation process cannot last forever, but for shipowners it only needs to last a few more years for the cash to roll in from operating fuel-oil powered tonnage. Then the profits can be used to invest in the next generation of ships designed to meet the IMO 2050 emissions goals.

Owners building up their dry bulk portfolios

There’s an expectation premium on existing tonnage basis the lack of newbuilding berths.

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