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Macro-economic signals continue to affect sentiment in bulk carrier freight markets. Commodity prices are falling. Globally, lumber prices are down around 60% in September compared to June, copper down 35%, and iron ore down 60% from a March peak of nearly $160 to a low on September 22 of $89.5. Rio Tinto and its biggest customer Baowu Steel announced on September 14 that they would cooperate to expand Pilbara production, so investment in new production continues. On the whole, though, June to September 2022 have been miserable months for capesize operators and anxious months for operators of smaller tonnage as earnings were dragged down by capesize sentiment. As the Chinese property market slowly imploded, Chinese concrete production was down 6% in July and cement down 3% in August alone as producers faced lower demand and higher input prices which they found hard to pass on to buyers. On a dollar per dwt basis, supramax bulkers remain the goldilocks size Votorantim Ciment of Brazil put it succinctly in its most recent quarterly review: “Several factors impacted the world economy, which had already been weakened by the pandemic: higher-than-expected inflation across the world (especially in Brazil, the United States and Europe), tighter financial conditions, a worse-than-expected slowdown in China, reflecting COVID-19 outbreaks and lockdowns, and further negative repercussions from the war in Ukraine, with an increase in the cost of fuel, freight and energy.” Meanwhile, Chinese steel prices fell by 30% from May to September. High temperatures in parts of China and flooding in other parts disrupted economic activity, as did rationed energy supplies and Covid-related lockdowns in a number of provinces. Exports have fallen too, impacting the geared bulker market. Capesize freight rates as measured by the Baltic Exchange C5TC average peaked at $29,139 for May and fell to $9,339 for August, bottoming out at a lowly $5,407 on September 8. A rally has subsequently begun with rates reaching $18,293 by September 23. FFAs suggest rising sentiment too, with November FFA selling at $19,000 on September 23, up $1,000 on August 23. There was less volatility in the smaller sizes. The Baltic’s panamax P4TC average for August was $14,483 and touched bottom on September 2 at $8,771 before resurfacing to reach $14,271 on September 23. The northern hemisphere grain season has begun and the loss of perhaps half of Ukraine’s output means more complex trading, leading to higher utilisation of the fleet and perhaps more upside in freight rates. There remains confidence in the geared bulker market, if the bid to wholly acquire Island View Shipping by recently listed Taylor Maritime is anything to go by. On a dollar per dwt basis, supramax bulkers remain the goldilocks size, offering better returns than capesizes over the last 10 years. The Baltic Exchange’s S10 time charter average for August was $18,795 – double the C5 capesize average. Supramax earnings hit a low of $16,199 on September 12 before recovering to $18,172 by September 23. That is just a few dollars difference for the twice-as-expensive capesize. Year to date earnings for a supramax average $24,668 compared to just $16,568 for a capesize. Handysize bulker earnings, represented by the Baltic’s HS7TC average, have followed a similar trajectory reaching a low of $15,463 on September 6 and recovering to $16,836 by September 23. It must be said, geared bulk earnings of mid-teens per day would be pleasing on any given day, and if this is the bottom of the market, operators will be delighted. The question now is whether the unseasonal recent decline in bulk carrier freight markets has ended, or whether this is just a pause before the US, EU and China fall into recession, bringing this remarkable pandemic episode to an end. Macro-economists say that rising interest rates (the Federal Reserve added 0.75 basis points to its funds rate on September 21) will pressurise global capital markets and property markets going into 2023. The expectation of a US recession is being priced into the stock market which is tracking its 2008 decline worryingly closely. The EU and UK are hovering around zero growth. Japan’s quarterly GDP growth for Q2 was recently upgraded to 0.9% from 0.5%. But, when stated in US dollar terms, Japan’s GDP is below $4trn for the first time in 30 years due to the yen’s 30% fall against the dollar in the last 12 months. Goldman Sachs has cut its 2023 China GDP forecast from 5.3% to 4.3%. As China is so important to the bulk carrier market, this is an ominous prediction.

Reasons to worry for dry bulk

Splash Extra identifies plenty of ominous signs for a sector under pressure.

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