Even as the Baltic Dry Index has recently reached a three-year high, the dry bulk shipping market may not remain rosy in the long term, reports Zeng Xiaolin
The BDI fell to a historic low in February 2016 as a drop in demand for dry bulk commodities combined[ds_preview] with an oversupply of vessels. Record-high demolitions of bulk carriers and a slowdown in newbuilding orders followed, resulting in a market recovery that has been sustained in 2017 to date.
Supporting the firming sentiment has been the recovery in global steel prices. This has especially underpinned shipments of iron ore and coking coal to China.
However, at a recent industry conference in Singapore all of the panellists concurred that while the short term looks rosy, the long term is fraught with uncertainties.
Berge Bulk CEO James Marshall noted that China’s iron ore demand has been strong, backed by steel demand in the country, where steel production grew 10.3% year-on-year to 74mill.t in July. Firming steel prices have encouraged production, in turn generating demand for iron ore and coking coal, the main steel-making ingredients.
Marshall said: »Coal shipments have also been growing strongly this year and we see that new trades, such as bauxite from West Africa to China. This is a good tonne-mile trade, which has helped dry bulk shipping. So from a short-term perspective, we’re looking really positive.«
Bulk clouds on the horizon
He mentioned that he was more conservative about dry bulk demand in the longer term: »When we go into the longer term, we’re looking at more clouds on the horizon. The primary reason for that is that even if China continues to grow at a strong pace, when you look at per capita consumption, you can argue that China’s steel demand per capita consumption comes down in the future. A lot of the growth in dry bulk shipping in the last eight years has been backed by the substitution of domestic iron ore with imported iron ore and that process is almost finished. Even though China imported 90% of the needed iron ore, we don’t have the safety window of the last few years. We need to be cautious about China’s iron ore demand in the future.«
Even though Brazilian mining group Vale’s new S11D or Serra Sul mine would add 75mill. t of iron ore cargoes annually, Marshall noted that the global fleet is also a source of concern.
Year-to-date, 88 bulk carriers of varying sizes, with total capacity exceeding 9mill. dwt, have been ordered by shipowners who are encouraged by firming freight rates.
»It’s healthy that we have more Brazilian iron ore but with more ships, it’s not so helpful. Certainly, we will see some scrapping of older VLOCs, but new orders aren’t going to help so much,« said Marshall.
Another panellist, Noble Group’s head of freight, Michael Nagler, pointed out that the Chinese government’s long-term goal of clearing up pollution would gradually lower the proportion of thermal coal in the country’s energy mix.
The Chinese government has expressed its desire to increase the share of natural gas and renewables in the energy mix. Nagler said: »Coal is still a huge part of the energy mix in China, but the problem is that it creates pollution. In northern China, for example, three years has been shorn off a person’s life span because of pollution. So in the long term, as there is an increase in the consumption of renewables in China, thermal coal imports will decline going forward.«
HBC focus on minor bulk trades
HBC Hamburg Bulk Carriers’ Georg Greilinger however, emphasised that while coal and iron ore are the most shipped dry bulk commodities, minor dry bulk trades remain healthy. Due to this, HBC is not largely dependent on shipments to China. The company focuses on using Handysize to Supramax bulk carriers that are chartered in from its principals and third-party owners.
Greilinger said: »The minor bulk trade very much serves the needs of the population, which has been growing. So when you talk about food, a lot of the commodities that we ship are linked one way or the other, such as fertilisers and agriproducts, and that is very much linked to populations. When it comes to our trade, we have decided to go for certain vessel designs which obviously allow us to trade more in restrictive ports which you normally don’t find in China. Maximise revenues on our cargo intakes, so Australia, South America, Africa and India are the markets we are focusing on.«
Apart from demand for conventional dry bulk commodities, China’s Belt and Road initiative is seen as a positive trend. The initiative which involves the development of port and rail infrastructure in countries that are China’s trading partners could generate demand for construction materials and steel products, noted Stavros Tsolakis, a member of the Greek shipping family behind DST Shipping.
The lawyer Rosita Lau, partner with international law firm Ince & Co, observed more cement and steel products being shipped to countries where the infrastructure is being developed. She said: »Dry bulk shipping will grow. China’s biggest cement maker, China National Building Materials, is carrying cement to Sri Lanka and other parts of the world to build up infrastructure. China’s largest steel mills are also sending steel products to Africa and other developing countries for the same reason.«
Zeng Xiaolin
