Dry Bulk Charter Rate Up, But BIMCO Says the Market Still Fragile

Damas Jati - 07/11/2017, 15:23

Capesize ships have (as of 26 October) been in profitable territory (above $15,300 per day) since 11 August and panamaxes likewise, since 5 September (above $10,200 per day). The handysize segment has, for the first time since April 2014, reached a freight rate level above $9,000 per day, according to BIMCO.


BIMCO (Baltic and International Maritime Council) is the largest of the international shipping associations representing shipowners; its membership controls around 65 percent of the world’s tonnage and it has members in more than 120 countries, including managers, brokers and agents.


However, BIMCO also conclude that this ongoing recovery is still in a “fragile” state – demand has increased but so has supply. This means only a slight fundamental market improvement. The return to permanent profitable freight rates is still way off. The transport demand for dry bulk cargoes in Q1-2018 is considerably lower than the volumes transported in Q4-2017, and that’s the first hurdle to cross. Maintaining slow steaming is another prerequisite to hold onto the gains that have been achieved.


At the centre of dry bulk demand, as always, is China; growing its seaborne imports of coal during the first nine months of 2017 by 18.7%, and its seaborne imports of iron ore during the first eight months, by 6.9% year-on-year. In total, this is a demand growth of 79m tonnes (27 + 52 respectively) for the two commodities year-to-date.


Setting a new world record in steel production for the month of August of 74.6m tonnes, resulted in total growth of 5.6% for eight months’ production in 2017, compared with the same period last year.


Another record was reached in September, when Chinese iron ore imports exceeded 100m tonnes for the first time.


While this is much needed by the dry bulk shipping industry to get out of the doldrums of recent years, there may be a limit as to how far this can go. Imagine if steel production stalls, then iron ore imports are likely only to grow at the expense of domestically mined ore.


BIMCO calculates that substitution of low-quality, domestically mined iron ore in China, for imported high-quality iron ore from Brazil or Australia, would have increased imports by 17m tonnes per month in the first eight months of 2017.


Regardless of recent reports, about one in three Chinese iron ore mines being at risk of losing their mining licenses due to environmental issues, the output from Chinese iron ore mines is still up by 5% in the first eight months, year-on-year. One of the key risk elements in the equation is actual steel consumption in China.


“In addition to the strong growth that we have seen into China, US coal exports have certainly added to the panamax and capesize demand in the Atlantic since Q4 2016,” BIMCO said.