Market Review

Freight Market Summary

Freight rates for our minor bulk ship types in 2018 continued to recover from the cyclical low in 2016, supporting the strongest annual average index rates since 2011. Average Handysize and Supramax spot market rates improved 14% and 23% to US$8,270 and US$10,910 per day net respectively.

The market followed a similar pattern as in 2017, but less volatile and at a higher level for the first three quarters, starting with the usual seasonal decline, recovery after Chinese New Year, peaking in October and softening thereafter.

The market followed a similar pattern as in 2017, but less volatile and at a higher level for the first three quarters, starting with the usual seasonal decline, recovery after Chinese New Year, peaking in October and softening thereafter.

Minor bulk market strength was driven by an improving supply-demand balance with tonne-mile demand growing 5.3% year on year compared to only 2.4% net fleet growth despite historically low scrapping. Fuel prices continued their upward trend until October, encouraging slower average ship operating speeds which contributed to tighter supply. However, this trend reversed and speeds increased with the sharp drop in fuel prices late in the year.

2019 has started weaker than the last two years with a more pronounced Chinese New Year dip and is likely to see greater volatility. However, the seasonal recovery is now underway.

Key Supply Developments

Key Supply Developments

Global dry bulk net fleet growth in 2018 was largely unchanged at 2.9% year on year due to reduced newbuilding deliveries and much reduced scrapping because of the improved freight market. Now close to zero, scrapping cannot reduce any further and will potentially increase due to the growing number of old vessels and the increasing burden of environmental regulation.

Growth in the dry bulk fleet was concentrated in the larger Panamax and Capesize segments in which capacity expanded 3.2% compared to 2.8% in 2017. The global fleet of Handysize and Supramax ships in which we specialise grew slower in 2018 at 2.4% compared to 3.6% in 2017.

The global dry bulk fleet continues to operate at below full speed, so there remains potential for effective tonnage supply to increase without adding new ships to the fleet, if fuel prices decrease. Similarly, effective supply can tighten if fuel prices increase and ships slow down.

Ship Values

Improved freight market conditions supported sale and purchase activity and increased vessel values. Clarksons Research currently values a benchmark five year old Handysize bulk carrier (now defined as 37,000 dwt) and a benchmark 58,000 dwt Supramax both at US$17 million. Handysize newbuilding prices have increased 8% since February 2018 to US$24 million.

Key Demand Developments

Clarksons Research estimates total dry bulk tonne-mile demand growth in 2018 of 2.9% year on year – slower than a year ago mainly due to stagnant global demand for grain, soybean and iron ore, offset by healthy 5.3% growth in non-grain minor bulk demand. Chinese imports of eight key minor bulk plus grain commodities grew by 8.2%, but Chinese steel export volumes reduced by 8% as strong domestic demand provided less incentive for export.

The trade in iron ore (in which we have negligible involvement) remained flat as some Chinese steel-making shifted towards recycling more scrap instead of processing iron ore. Infrastructure disruptions in Brazil have impacted iron ore exports in early 2019.

Global coal trades in 2018 are estimated to have grown by 3.3% due to increased US exports and Asian imports, particularly to India and China, although Chinese coal import restrictions undermined the coal trade towards the end of the year.

Stagnant growth in the global grain trades was partly due to unfavourable weather conditions and the US-China trade dispute. US and Brazilian grain exports supported healthy demand in the first half of the year, while second-half trade flows – particularly US soybean exports – were affected by the Chinese import tariffs.

Scheduled Orderbook

New ship ordering activity in 2018 remained concentrated in the larger Panamax, Capesize and very large ore carrier segments where ordering reduced to 4.9% of the global fleet. New orders for our type of smaller Handysize and Supramax vessels remained more limited at 2.1%.

New ship ordering is expected to reduce further in 2019, discouraged by the continued gap between newbuilding and secondhand prices as well as uncertainty over upcoming environmental regulations and their impact on future vessel designs.

The combined Handysize and Supramax orderbook stands at 6.5%.

Dry Bulk Outlook - Possible market drivers in the medium term

Opportunities

  • Continued strong industrial growth and infrastructure investment in emerging markets and China, boosted by economic stimulus, enhancing demand for dry bulk shipping
  • Easing of US-China trade tariffs and restrictions resulting in improved sentiment and dry bulk trade activity
  • Environmental policy in China encouraging shift from domestic to imported supply of resources
  • Limited newbuilding ordering and deliveries supporting tighter supply in the medium term
  • Environmental maritime regulations encouraging increased ship scrapping from current minimal levels and discouraging new ship ordering
  • Supply contraction due to slower operating speed of ships burning more expensive low-sulphur fuel and time out of service for ships installing scrubbers to meet the IMO 2020 sulphur cap
  • Expanding thermal coal imports into emerging south and south-east Asian countries

Threats

  • Slowing global economic growth affecting the trade in dry bulk commodities
  • Reduction in Chinese industrial growth and investments impacting demand for dry bulk shipping
  • Environmental policy in China encouraging greater shift to renewable energy, possibly impacting coal imports
  • Escalating trade disputes impacting global GDP growth, weakening sentiment and undermining dry bulk demand
  • Excessive new ship ordering if the price gap between newbuilding and secondhand ships closes
  • Periods of low fuel prices supporting faster ship operating speeds which increases supply
  • Iron ore infrastructure disruptions in Brazil impacting global iron ore tonne-mile trade flows

You're viewing:

Market Review

What’s next

Our Performance in 2018

Tools


History