Sentiment in the dry bulk market remains relatively optimistic despite some correction in rates. Jens Christian Nielsen, managing director of[ds_preview] German shipbroker Frachtcontor, sees the fourth quarter »on a good way«.
HANSA: Is the dry cargo market back in a stable setting following the rebound this summer? Time to call the end of the »crisis«?
Jens Christian Nielsen: The worst seems past us. Supply/demand fundamentals for 2021 look much better: + 4.5 % forecast dry bulk cargo growth versus scheduled fleet growth of +2.2 % before scrapping. Trading in the dry cargo sphere has proven more robust than expected. Presently, we are seeing a lot of activity all over. Charter operators are the ones benefiting the most lately, having previously taken on tonnage for period at relatively cheap rates. For vessel owners, the picture is somewhat different, with average earnings so far this year still at insufficient levels. Generally, the fourth quarter is on a good way. There are lots of cargo bookings and in some areas, including the Continent, tonnage is very scarce. Last year’s Q4 was very strong as well which is still on people’s minds, so sentiment is rather good. Yet, the near-term outlook has become a bit cloudier due to the rapid pace of Covid-19 infections. The risk of second lockdowns is high and the impact on trading and finance activities could be severe.
Smaller geared ships have shown a robust performance of late with hardly any ups and downs. What’s happening there?
Nielsen: The Continent/Mediterranean market witnessed a peak in steel scrap volumes recently which went a long way in supporting strong freight levels. Also, there’s a lot happening behind the scenes in the US/China-trade despite the ongoing trade war, particularly with regard to grain shipping activity. In fact, soybean volumes from US to China have risen more than fourfold lately! Further, grain volumes ex Ukraine and ex Russia were quite strong during the third quarter. Still, we think the recent performance of supras and handies is quite a normal pattern. Commodities carried are often essentials like grains and fertilizers, there is less dependency on the more cyclical steel sector and generally more flexibility of deployment.
The »coal« era might soon come to an end. The pandemic seems to accelerate the phasing-out of coal for power generation. Can dry bulk operators do without it?
Nielsen: The potential for coal in the dry cargo trades is better than many people think. Yes, steam coal volumes for power generation may be on the decline in the western economies. China is also expected to reduce its imports going forward. However, India is emerging to replace China as biggest coal importer with strong growth rates. Across southeast Asia (Vietnam, Thailand, Malaysia, Philippines) coal demand for power generation keeps growing fast as well.
Adding today’s low orderbook and the demolition potential across the smaller panamax fleet to the equation, we believe the dry bulk market can handle the projected decrease in coal volumes.
