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Supercycle? Settle down, please

Our special correspondent doesn’t see this month’s buzzword as a signal to head to the shipyards

As each year passes, memories fade and those who participated in the events of the past are superseded by new generations. There are still plenty of people around who witnessed the shipping boom of the early 21st century, likewise there are plenty of relative newcomers who have only experienced the relatively mediocre markets of the past decade. Two terms which were widely used 15 or so years ago and which now appear to be making a comeback were ‘supercycle’ and ‘new paradigm’.

There is no denying that what we saw in the early noughties was like nothing seen since the original industrial revolution of the 19th century, as China stepped up as a manufacturing powerhouse, but that new paradigm didn’t last for long. The complaints from investment banks that they were unable to hire top graduates because they all wanted to be shipbrokers was short-lived, likewise the shipping supercycle where people joked about carrying iron ore as hand luggage came to a juddering halt with the onset of the global financial crisis.

Where shipping has to be cautious is in the dwindling shipments of the second largest seaborne dry bulk commodity, coal

Talk of a new ‘commodities supercycle’ has been the dominant feature in many market reports in the week immediately after Chinese New Year and whilst the main chatter has been around increased commodity prices, freight rates have been swept up in the euphoria. Market reports talking of a “tremendous recovery” seen in the cape market and memories of 2008 being recalled, all seemed a bit over the top compared to the reality of the situation. Yes, things are a lot better than they were a year ago and the cautious optimism for this year is based on some solid fundamentals, but let’s hope some perspective is maintained.

Much of the infrastructure spending which has been earmarked to lift the global economy out of the Covid-induced slump is heading towards ensuring decarbonisation targets are met. That will certainly boost demand and prices for commodities such as copper, lithium and nickel which is no doubt good news for those players involved in shipping minor bulks. Where shipping has to be cautious is that as we head towards a carbon neutral future, it will be at the expense of the second largest seaborne dry bulk commodity, coal. Coal is certainly going to be around for many years to come but the poor performance of the coal trade was one of the defining contributors to last year’s relatively lacklustre dry bulk market. As the world weans itself off coal, there will be less of it shipped. There is simply no way that coal’s percentage of the dry bulk market can be replaced by renewables.

Whilst shipping might not be the beneficiary of the current surge in commodity prices to the same extent it was when the growth of the Chinese steel industry prompted the last great rates boom (and the subsequent suicidal rush to the shipyards), there is still reason to be optimistic. Shipping recoveries are halted by too many ships. For the first time in a long time, the bulk carrier orderbook is at a manageable level and that is one area where the industry can have some control over its destiny. If we were able to add to the discipline of not over-ordering the most common sense solution to shipping’s ability to lower emissions, namely slow steaming, shipping could solve part of its decarbonisation problem and enjoy some much needed prosperity. In all the euphoria that is surrounding the current ‘supercycle’ chatter, let’s not forget that the definition of such an event is ‘an extended period of booming demand for commodities followed by a collapse of demand and eventually prices.’ We have been there before. This will be no different.

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