Dry Bulk

Wind in bulk carriers’ sails

March has been highly profitable, and with the need to search for alternative cargoes, the outlook is strong

China remains paramount in the bulk carrier pantheon. This is becoming increasingly worrisome for the bulk carrier market, as the urgent issues in President Xi’s in-tray stack up in a year he would have wished would go smoothly as he seeks a constitution-busting third term in office. As the cult of personality builds around him, he must take on personal responsibility for a slowly imploding property market, managing the pandemic, rising energy and commodity prices driving factory gate and foodstuff inflation, China’s response to the war in Ukraine, ongoing strategic competition with the US and a stalled Belt and Road Initiative.

The resurgence of the Covid-19 pandemic has caused lockdowns across swathes of the country’s most important industrial areas, such that 30% of Chinese GDP is now said to be shuttered. If this lasts for a month, it could wipe 1% off Chinese GDP growth this year. It is affecting steel production in key areas such as Tangshan, a city which produces around 13% of all Chinese steel, but where output has been suspended at many mills due to public health measures. This is driving up steel futures prices and the prospects of reactive monetary loosening by the People’s Bank of China. The bank now has a fine balancing act to perform between supporting industrial activity and exports but not overheating the already oversupplied housing market.

Capesize freight rates from Australia to China stood at $8.86 on February 21 (a TCE of $15,331) then enjoyed three firm weeks to peak at $12.38 on March 15.

Life is even better for panamax operators, who have enjoyed a rising market for a month now. The Baltic Panamax Index stood at 3,413 points on March 25, up 28% in a month.

Ukraine, the fourth biggest exporter of wheat and coarse grains, shipped almost 50m tonnes of wheat, barley, sunflower seeds, etc to global destinations last year, with 11m tonnes going to China, 4.6m tonnes to Egypt and 3.6m tonnes each to the Netherlands and Turkey. The Ukraine government says a disrupted planting season this year will result in at least a 50% fall in the harvest. As Ukraine’s Black Sea port approaches remain mined, any exports will have to find alternative routes out. Russia shipped around 20.5m tonnes of grains by sea last year, of which 3.7m tonnes went to Turkey and about the same amount to Egypt, with most grains loading at Novorossiysk. If Egypt and Turkey are not to suffer significant food inflation and possibly social unrest, they will need the support of other suppliers.

China, the biggest wheat importer globally, has this month warned that its winter wheat crop condition is “the worst in history.” Agriculture minister Tang Renjian reports that heavy rainfall last year delayed the planting of about onethird of the normal wheat acreage and that the harvest may be down 20% this year. The US, Brazil and Argentina all shipped over 100m tonnes each of wheat and coarse grains in 2021. The grain seasons from those countries this year should prove very busy, to the delight of panamax bulker owners in particular.

Russia shipped almost 53m tonnes of steel in 2021, 17m of those by sea, as well as 1.5m tonnes of iron ore. Ukraine exported around 15m tonnes of steel, of which 5.5m were by sea plus 9m tonnes of iron ore. Those figures may be significantly lower this year - certainly the Ukraine figures, as tens of thousands of steel workers are currently occupied in the National Defence Force.

Lockdowns in China may prevent it from repeating its 53m tonnes of steel exports of 2021 when it led the world, again. Globally tight steel markets could see construction corporates scouring the globe for alternative sources of supply, to the delight of geared bulk carrier operators, for whom steel is a key cargo.

The result in the freight markets has been a 25% month on month increase in the Baltic Supramax Index to 3,020 points on March 25 and a 27% increase in the Baltic Handysize Index to 1,782 points on March 25. Truly, the capesize market has become decoupled from the freight markets for smaller ships. Nonetheless, the BDI is running ahead of Q1 last year and market bulls look to have the wind in their sails for the time being. ●