Dry Bulk

October was a month of dramatic change for the dry bulk freight market. After peaking at over $80,000 a day early in the month, the Baltic Capesize 5TC average slumped to below $30,00 a day by early November.

Sub-capesize benchmarks were initially resilient to weakening capesize market sentiment, but later in the month tumbled towards fivemonth lows. Fortunes in November have been mixed so far, with the capesize benchmark holding up at around $25,000 to $30,000 a day for the month to date, but with sub-cape benchmarks continuing to slide.

The slump in the dry bulk freight market is not surprising given the weight of evidence to support a sharp weakening in Chinese import demand; indeed, MSI has been surprised over the heights to which rates had risen to recently, given negative underlying demand dynamics, particularly relating to Chinese steel markets. The most recent official data shows that Chinese steel output dropped to 73.4m tonnes in September (down 21.1% year-onyear), and October has been weaker still (down 23.3% year-on-year). China’s iron ore imports were down 7% year-on-year in October.

Typically, this time of year usually marks a period of strong iron ore trade as exports out of Brazil and Australia reach seasonal peaks. This year, though, loadings out of both countries have disappointed, with Brazilian exports in October – per tonne a more significant driver of capesize demand given the long distances – being the lowest monthly total since before 2017.

Falling Chinese industrial demand has more than offset a moderate uptick in global coal trade. In contrast to the commitments being made to ‘phase down’ coal at the COP26 meeting, countries around the world have increasingly relied on the fuel in recent weeks in response to a global energy crunch.

Restrictions to gas supply have been at the heart of the issue, and coal has been a key beneficiary. Notably, China’s imports have been strong (up 50% year-on-year in October) even though domestic production has risen to record levels - producing the most coal ever in a single day on November 12 at over 12m tonnes.

Key to the collapse in freight earnings, though, has been a significant easing of Chinese port congestion. Movements data from Oceanbolt shows that there has been a sharp drop in time at anchorage, with the average (median) days falling from 4.3 days in September to just over three days in November. This has helped free up more tonnage across segments, thereby negatively affecting market balances.

MSI expects Chinese underlying demand to remain weak in the short term, partly related to difficulties in the property market and partly thanks to efforts to minimise pollution in the run-up to the Winter Olympics in Beijing.

This will also ease port congestion further and with commodity supply likely to weaken in Q1 as a result of seasonal disruptions to production, MSI’s near term outlook for bulk market freight earnings is weak. ●