Dry bulk owners enjoying a welcome bounce in earnings and asset values should be prepared for pressure in the second half of the year as the impact of China stimulus wanes and port efficiency improves.
In its latest monthly HORIZON report, Maritime Strategies International reports a relatively positive short-term outlook but adds that belief in a post-COVID, stimulus-led dry bulk trade recovery only partly explains the strength of the market.
Dry bulk markets are exhibiting significant ‘froth’ with port congestion at very high levels and sub-cape benchmark spot earnings at levels not seen since 2010. According to data from broker Howe Robinson, in mid-March 159 vessels were anchored at the main grain and soybean loading ports in Brazil waiting to load cargo for example, four times higher than the five-year average.
“An uptick in congestion can quickly absorb tonnage and remains a major underlying reason behind rapid earnings growth this year, yet there have also been other important supports to sentiment and earnings, including changing trade patterns, large bunker price increases, strong commodity price rises and a firm container market which has driven breakbulk cargoes from container ships into handy bulkers,” says MSI Dry Bulk Analyst Alex-Stuart-Grumbar.
Smaller vessels have also been significantly impacted by port inefficiencies, as they spend a higher proportion of their time loading and unloading cargoes via less automated and labour-intensive means than larger vessels. Discussions with a Handysize owner reveal a 35% increase in the number of days waiting for berth in the Pacific for their vessels since the onset of COVID.
With an improvement in industrial production around the world now established, the impact of China’s stimulus-driven demand is a critical factor in the outlook for bulker earnings. So far this year Chinese steel production is up 13% and infrastructure investment up as much as 37%. However, the Chinese government has started to restrict money supply to stop overheating in the construction sector.
Supporting the first quarter bounce is a dry bulk orderbook at its lowest for decades and marginal fleet growth will increasingly support market balances. This is particularly true for the Handysize segment with just 86 vessels scheduled to be delivered this year, 30% lower than five-year average.