Dry Bulk Market: Murky Waters Ahead?
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The future course of the dry bulk market, especially when it comes to demand for iron ore from China, is far from certain. In its latest weekly report, shipbroker Allied Shipbroking said that “it looks as though we have seen a further deepening of the scale back in the dry bulk market take place this past week. The correction has been fast paced up to now and may well intensify further as we enter the final quarter of the year. On some of the smaller sizes we seem to have matched the freight earning levels we were seeing during the same time period last year. While for the capsize segment, it looks as though there is still a bit more to go before we match the US$ 18,000 and 19,000 per day on the BCI TCE that we were seeing in early October 2018”.
According to Allied’s Head of Research & Valuations, Mr. George Lazaridis, “it looks as though the scale back in iron ore volumes coming to market has been consistent with the expectations we were seeing during mid-summer. Yet it looks as though China has been playing a key role here over the last few weeks. Demand for both iron ore and coal (both key components of the steel industry and major commodities in dry bulk shipping) have gone into a state of slumber this past week, with prices of both noting one of their sharpest drops in almost 12 months. This has been on the back of a government order on steel mills to shut down or limit their operations as part of a strict cap on pollution in preparation for the nation’s week-long celebrations for the 70th anniversary of the People’s Republic”.
Lazaridis added that “this is obviously but a short-term event in its nature, leaving some to question if we could see this recent trend reversed once the celebrations come to an end. The situation however seems to be a bit more complicated in nature. This most recent drop may well be as part of the celebrations that are due to take place this week in China, yet the steel industry seems to be facing much deeper fundamental issues moving forward. Official figures as to the countries economic growth and industrial production have been relatively disheartening of late. There seem to be ever more signs that the slowdown will continue and will not be limited to China. Many have been sparking fears of a looming recession for some time now, yet there is still heavy debate and arguing as to if there is any clear evidence to support such claims”.
He also noted that “yet even if we manage to outmaneuver a global economic recession, the continuing trade tensions between the US and China aren’t likely to leave much room for further improvement to be seen on key dry bulk trades. There is limited expectation that some resolution will arrive any time soon, yet a key date to how things will develop moving forward will be the 15th of October. This is when the additional 5% tariff hikes Trump announced will be coming into effect. In the case that these go online as originally planed we would surely see things escalate further from the side of China, which despite having preferred to not act during the previous tariff hike announcement, would most likely retaliate this time round with counter-measures of one sort or another. Of course, all this doesn’t come near to matching the disruptive events that took place during the final quarter of 2018, something that may well be indicating to the market managing to hold its ground much better then what it did last year. It does however look that this will prove to be an under-performing final quarter for the dry bulk market against the historical trends that we had so become accustomed to. A shift in seasonal trends is not a thing to worry about in its self though this time around we may well be seeing more sinister indications lurking under the surface. What is for sure is that the increased level of uncertainty and risk will continue to dominant market sentiment for now”, Allied’s concluded.
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