It simply does not add up. Then again, we couldn’t care less. Spot earnings for all sizes of bulkers are profitable by the end of September. Daily average capesize freight rates stood at $22,841 per day at the start of this week and handysizes are making in excess of $10,000 per day. What’s not to like? Take a break for once – lean back and enjoy it. Be complacent for a while.
Still, bear in mind that old saying that if something is too good to be true – it probably is. At Splash Extra, we are simply putting the present freight rates into perspective, when highlighting the fact that only panamax bulkers are breaking even on average spot rates in the January through September period. Compared to previous years, we have not seen average earnings as low as this since 2016.
Here’s why shareholders are running away
While the optimists, including all chartering managers, only focus on the market right here, right now, it is the duty of this title to add more substance, perhaps to also suggest a few reasons why shareholders are running away.
Safe Bulkers is down by 40% year-to-date, Golden Ocean 33%, Navios 61%, even Pacific Basin is down by 30% even though it impaired its fleet by $198m in a move to develop higher earnings per share.
Global steel production is down by 4.2% in the first eight months of 2020, pulled up by China, which is producing 3.7% more, and dragged down by the rest of world, which is producing 13.3% less.
Is the soon to be negative coal imports growth rate into China offering a preview of what is likely to come around later? Many investors tend to believe so. Currently being up by just seven panamax loads, at 0.5m tonnes (+0.2%) for the first eight months, imports stand at 221m tonnes.
During the first three weeks of the new soybean marketing year in the US, the farmers of Illinois and Iowa have been busy selling beans to the Chinese. The rush comes after record imports of Brazilian soybeans earlier in the year. Is this due to a sudden recovery from African swine fever?
Maybe. At least they have been busy flying in top, productive French breeding pigs in the past months, as they seek to replenish their dramatically reduced sow herd. The new piglets must be very hungry.
The big question: will the world’s largest iron ore miner, Brazil’s Companhia Vale do Rio Doce (Vale), deliver in Q4? And when will we stop hearing about the Chinese iron ore inventory as a relevant explanatory factor and driver behind Chinese imports?
Don’t try this at home: Splash Extra encourages no one to make sense out of Chinese iron ore imports, changes to inventory and production of crude steel – as that would only be a waste of time. Even trying to estimate the iron content of domestically mined iron ore makes no sense. Those numbers simply do not add up.
But do watch out for the brown marmorated stink bug, which according to Australian authorities poses a high biosecurity risk to the nation. It’s an invasive pest, native to China, Japan, Korea and Taiwan, that can severely impact the agricultural sector – and thus could limit dry bulk exports of wheat during the first half of next year if not contained. Is this an implicit way to raise the trade barrier to China?