Fell below 1000 points! Bottoming out and rebounding? Bulk carrier market shrouded in gloom.
2022-09-05 09:00
The Baltic Dry Index (BDI) fell below the 1000-point mark, hitting a new low in more than two years, with freight rates for major vessel types declining across the board, casting a shadow over the bulk carrier market.
On August 31, the BDI fell 52 points to 965 points, a daily drop of 5.1%, and a monthly drop of nearly 50%, the largest single-month decline since January 2020, marking the third consecutive month of decline. The Baltic Cape Index (BCI) fell 35 points to a two-year low of 302 points, a daily drop of 10.4%, and a monthly drop of 86%, the largest single-month decline since May 2020. The average daily earnings for Cape-size vessels decreased by $288 to $2505, a new low since May 2020, with freight rates at only 16.7% of the cost price.
Meanwhile, due to Cape-size vessels competing for cargo originally intended for Panamax vessels, Panamax freight rates have also fallen. On August 31, the Baltic Panamax Index (BPI) fell 67 points to a 21-month low of 1217 points, a daily drop of 5.2%, and has been declining for more than a month; the monthly drop was 41%, the largest monthly decline since January 2020. The average daily earnings for Panamax vessels fell by $600 to $10956, nearing the cost price of $10,000.
Additionally, on August 31, the Baltic Supramax Index (BSI) fell 65 points to 1626 points, the worst performance in 10 months. However, the average daily earnings for Supramax vessels remain at $17881, significantly higher than the cost price of $8000-9000.
Cape-size vessels tend to be highly susceptible to fluctuations in iron ore transport demand, and the sluggish demand for iron ore transport to China is leading to unusually low levels in the summer.
Some analysts point out that the recent sharp drop in Cape-size vessel freight rates is mainly due to the slump in China's real estate market leading to a sharp decline in steel demand, which is not expected to improve in the short term. Therefore, even if demand is estimated to grow by 2.2% and supply by 0.5% next year, freight rates for Cape-size vessels, which mainly transport iron ore, may not improve significantly; in contrast, smaller vessels, which mainly transport essential goods such as grains, are more likely to see growth in freight rates.
Typically, after July is the peak season for iron ore shipments from Brazil, so daily charter rates for Cape-size bulk carriers usually rise. Between July and October last year, daily charter rates for bulk carriers continued to rise, reaching a record high in about 12 years in October. However, this year, sluggish demand for iron ore to China is leading to unusually low levels in the summer.
An executive at NYK Line stated, “Charter rates falling below around $10,000 in August is an extremely low level.” “Even if iron ore transport increases before the end of the year, it is unlikely to see the sustained record highs of last year, and it may remain at low levels in the future.”
According to official Chinese data, China's iron ore imports in July increased by 3% year-on-year, but decreased by 3% in the first seven months. Meanwhile, the World Steel Association statistics show that China's crude steel production in July decreased by 6.4% year-on-year, and decreased by 6.4% year-on-year in the first seven months due to factors such as the pandemic.
Data released by the National Bureau of Statistics of China in July shows that real GDP grew by 0.4% year-on-year in the second quarter. According to 海老原良, president of Tramp Data Service, a company familiar with dry bulk carrier market conditions, the real estate market, which accounts for about half of China's iron ore demand, is cooling down, and this could lead to a decrease in iron ore transport demand in the medium to long term.
In addition, port congestion caused by the pandemic is also easing. Currently, there are around 40-50 Cape-size vessels waiting to unload in Chinese waters, a significant decrease from 120-130 vessels in the same period last year. The number has returned to levels comparable to those before the pandemic. If the number of stranded vessels decreases, the number of vessels in operation will increase, thus contributing to a substantial increase in transport capacity. Against the backdrop of weak demand, this is one of the factors exacerbating the oversupply.
However, shipping companies remain optimistic about the future market outlook, stating that the number of old vessels scrapped in the first half of this year was very low, and the current sharp drop in Cape-size vessel freight rates will accelerate the sale of older vessels. In particular, there are about 200 Cape-size vessels over 20 years old in the current market, and these are expected to be phased out faster. Although the average freight rate for Panamax vessels is currently slightly higher than the cost price, older vessels will also have their charter rates lowered due to high fuel consumption, resulting in costs below the cost price, and they will also face accelerated scrapping.
Industry insiders predict that bulk carrier freight rates should bottom out soon, as futures market daily charter rates have started to rebound. Currently, the September futures charter rate for Cape-size vessels is $9125, October is $13000, and the fourth quarter is $13542.
The day after the BDI fell below 1000 points, on Thursday (September 1), the BDI index began to rebound, with Cape-size vessel freight rates recording their best single-day performance in over two years. The Baltic Dry Index rose 37 points or 3.8% to 1002 points, its best single-day performance in a month and a half. The Cape-size vessel freight rate index ended its five-day losing streak, rising 167 points or 55.3% to 469 points, its best single-day performance since June 2020. The average daily earnings for Cape-size vessels increased by $1382 to $3887. The Panamax vessel freight rate index ended its more than one-month decline, rising 13 points or 1.1% to 1230 points. The average daily earnings for Panamax vessels increased by $113 to $11069. The Supramax bulk carrier freight rate index fell 67 points to 1559 points, its lowest level in over 18 months.
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