LONDON: Optimism is abound the dry bulk market’s prospective recovery, hot on the heels of the rally in freight rates, which has been going on with brief interruptions since the past July. In its latest weekly report, shipbroker Allied Shipbroking noted that “despite the side step noted recently as part of the Moon Festivities in the Far East, the Dry Bulk market still seems to hold plenty of wind in its sails, something that could well translate into further improvements in the freight market over the coming weeks.
The drive in seaborne trade of dry bulk commodities has helped boost the Baltic Dry Index from its low point in Mid-July untill recently by just over 72%. This has, with good cause, raised the level of overall optimism and helped boost expectations as to the market performance during the final three months of the year as well as for 2018”.
According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “in the midst of this we have had several factors which could well prove to be fundamental driving forces for the market during the next couple of weeks if not months. The grain market has been thrown into the limelight, as the US Gulf and ECSA are starting to see a significant drive in cargoes. Both regions are expected to see an accelerated maturity in corn and soy crops thanks to unseasonably hot weather. This, in combination with the lagging flow brought about by the reduced rail services along the US Gulf Coast caused in early September by Hurricane Harvey, should provide a considerable flow during the next month, possibly far surpassing those noted during the same period in 2016.
At the same time, attention is still focused on the Chinese winter cuts which could help pull demand for imports of iron ore and coal forward, while at the same time drive for extra volumes of both commodities as the cuts start to effect local mines. The four-month winter heating period that will be subject to this curb in output typically begins in mid-November. This means that we could well see a stronger utilization of steel mills and higher production volumes in the period prior to this, possibly boosting the market up until the end of October”, Lazaridis said.
He added that ‘we may well see things continue relatively firm beyond this point as well, given that we are going to see a crackdown of a large number of iron ore and coal mines, something that will surely drive for higher reliance on imports rather than locally sourced supplies, while at the same time we do not have a complete picture as to the extent and focus the curb in output of steel mills will take and how strict it will be. Given that we also have a drive by most steel mills to amplify their utilization levels, there has also been a shift in focus to higher content iron ore feedstock and higher quality coking coal, both of which need to be sourced from far away locations, driving up tonne-mile demand by a considerable amount. This has been reflected in recent months by the increased activity noted in shipments out of both Australia and Brazil, while the local price margin between iron ore of 65% and 62% content has increased from 21% higher in early June to just under 34% now. Looking at the newbuilding delivery schedule for this 3 months period and you get a further sense that things will be able to hold at fairly positive levels. The slippage and cancellation rate for the total dry bulk fleet is currently holding at just over 32% and likely to increase slightly during the final weeks of December, while at the same time the fleet growth of the fleet during the nine month period up to end of September has shown an increase of just over 2%, indicating an end of year figure which is likely to still be well lower than the estimated growth in demand”, Allied’s analyst concluded.