Earlier hopes of a rally in the dry bulk market during the fourth quarter of 2018, in similar note to the past couple of years, have been quashed by the harsh reality of the latest trends in the global trade. In its latest weekly report, shipbroker Allied Shipbroking said that “a tectonic shift has been taking shape over the past week in the Capesize market, with rates for the Baltic Capesize 4TC time charter average having dropped by US$ 10,000pd. What’s more is that we have already fallen considerably short of expectations for 4Q2018, with October having shown an overall lackluster performance averaging out at just over US$ 18,500pd, while given how November has started it seems highly unlikely now that we will be able to close off the quarter having achieved a better average than the one noted back in 2017. Just to put that into perspective, the average for the Capesize 4TC for the 4th quarter of 2017 was just under US$ 23,000pd”.
According to Mr. George Lazaridis, Head of Research & Valuations with Allied, “all this seems to be the product of a large combination of market factors. Most prominent right now seems to have been the much slower volumes of Chinese imports of iron ore, something that has been mainly attributed to the increased use of higher grade iron ore (meaning you require less quantity to produce the same amount of steel), in combination with the increased use of scrap steel in the steel making process. Given that there is already talk of the steel market boom may well be reaching peak this year, this may well leave for even softer import volumes to emerge during the remaining part of 2018, especially when taking into consideration the fact that we have already entered into the annual winter slowdown in China as part of the antipollution rules”.
Lazaridis noted that “at the same time and as these factors were already playing their part in the iron ore trade, this past week we had a major disruption taking shape at Port Hedland in Australia, with BHP’s rail operations there coming to a halt due to a derailment. Beyond this it seems as though the overall dry bulk market has also been hit by slower demand for coal imports of late. This has been in part due to the warmer winter temperatures noted throughout most of East Asia, but it also points to the recent boost in local coal output in China already taking a fair market chunk out of local demand, while less coal-fired power capacity growth in the year so far leaves for even weaker demand fundamentals. Overall the major issue and main risk faced by the Capesize market it is its over reliance on the Chinese economy and its industrial production”.
“Given the current state of play in the US-China trade dispute, things look very murky in terms of the fundamental drivers of the Capsize market for the coming months. Despite the recent expressed optimism from presidents of both the United States and China, we still seem to be far from any real resolution. So as we have it this latest hit in the Capesize market may well have put the final nail in the coffin of what most were expecting to see in terms of freight rate performance in the final quarter. We seem to be world apart when given what the paper market was suggesting and seem to be even falling short against the market performance noted back in 2017. There is still room for some sort of recovery to take shape and this may well be driven from any increased demand for thermal coal later in the quarter (this of course is highly dependent on winter weather conditions). However, given what we are seeing right now it looks as though the average for the final three months of the year will fall to a level of well below US$ 20,000pd”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
