BDI index rises for ten consecutive days! Freight rate increases may become the "new normal" for the dry bulk shipping market

2021-08-25 09:00

After breaking through the 4,000-point mark last Friday, the Baltic Dry Index (BDI) reported 4,147 points on Monday, rising for the tenth consecutive trading day and hitting a new 11-year high. The rise in freight rates may become the "new normal" for the dry bulk shipping market.

On August 23, the BDI index rose 1.34% month-on-month to 4,147 points, a new high since May 2010. Among them, the Baltic Cape Size Index (BCI) rose 1.95% month-on-month to 6,114 points, a 12-year high, with Cape Size ships' freight rates rising 2% to US\$50,708 per day, the highest level since at least 2014.

Forward prices show that bulk carrier freight rates remain bullish. Jan Rindbo, CEO of D/S Norden, a 150-year-old Danish shipping company operating more than 500 vessels, pointed out: "Earlier this year, the industry thought the surge in freight rates was only a short-term phenomenon, but now it is beginning to be seen as a more structural and long-term trend."

As the economy recovers from the damage caused by the epidemic, the market's demand for raw materials such as coal and iron ore has surged this year, far exceeding the speed of fleet expansion. The epidemic further reduced the number of available ships, exacerbating the problem of tight capacity supply, which is favorable to shipowners.

Clarkson's research data shows that iron ore seaborne trade volume is expected to increase by 4% to 1.56 billion tons this year, the largest annual increase since 2017. Dry bulk trade is estimated to increase by 4.2% in 2021 and 1.7% in 2022. On the other hand, the capacity of bulk carriers is estimated to increase by 3.3% this year and 1.4% next year, far behind the increase in cargo volume.

Iron ore is a major driver of the rapid rise in the dry bulk market this year. George Lazaridis, head of research and evaluation at Allied Shipbroking, believes that this bull market still has growth momentum. Global steel demand remains strong and is expected to remain so at least until 2022. There are fewer newly built dry bulk carriers, and the current proportion of new orders to the fleet is historically low. Therefore, the dry bulk shipping market is expected to continue to rise.

Joergen Lian, an analyst at DNB Bank, said: "The dry bulk market looks very optimistic. Since last summer, the market has been brewing a recovery, and this recovery has been accelerated by the rebound in global trade this year."

Eirik Haavaldsen, shipping analyst at Pareto Securities, pointed out that as long as the commodity market remains strong, bulk carrier freight rates are likely to remain firm. With the arrival of winter in the northern hemisphere, the surge in coal imports will continue the upward trend in freight rates for the remainder of 2021.

Joakim Hannisdahl, chief analyst at Cleaves Securities, firmly believes that, considering factors such as the new ship construction cycle, the dry bulk shipping market will remain hot until 2023.

The current prosperity of the dry bulk shipping market has excited shipowners. Khalid Hashim, executive director of the well-known dry bulk shipping company Precious Shipping in Thailand, also believes that the surge in demand for raw materials has not yet reached its peak, and the strict epidemic prevention and control measures in Chinese ports have exacerbated ship delays, and port congestion has reduced the effective supply of ships, which will continue to push up freight rates.

However, there are signs that bulk carrier transactions have slowed recently. Allied's latest weekly report states that although the buying and selling of dry bulk carriers remains relatively active, the market enthusiasm has cooled down. Allied Shipbroking said that the strong earnings in the dry bulk shipping industry are indeed exciting, and the market is expected to continue to rise, but with the global COVID-19 pandemic, especially the surge in the Delta variant, risks need to be guarded against, and the so-called "post-epidemic" era is still very fragile.

Analysts believe that in times of economic uncertainty, "over-investment" should be guarded against. Excessive new shipbuilding activities will lead to a new imbalance between supply and demand. If the global macroeconomy declines and the demand for commodities is insufficient, increasing investment in the future production level of raw material commodities will increase upward pressure on prices. Therefore, following the trend in the short term is "safe", but caution is necessary in the long run.

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