Dry Bulk Shipping: No Quick Recovery For The Dry Bulk Market As Covid-19 Digs Deeper

The outlook is poor for dry bulk, as the negative demand shock and overcapacity come together to send rates to multi-year lows, even a return to work in China is not enough to support the market.

Given the overcapacity – which was already plaguing the market after years of supply growth outstripping demand – BIMCO already expected average freight rates to be in loss-making territory in 2020. This will only be exacerbated by the negative demand shock from Covid-19.
The outlook may yet deteriorate further if lockdown measures last longer than expected, or have to be reinstated to avoid a new wave of infections, but there is little prospect of an improvement. Even with large government investments in infrastructure, the global recession will doubtless lead to lower demand and low freight rates.

Demand drivers and freight rates
The dry bulk shipping market has had an appalling start to the year, with all sectors at loss-making levels. Even as China returns to work, the Capesize market, which had found some relief in April, is again experiencing rock-bottom freight rates.
The first quarter of the year proved a mixed bag for the dry bulk shipping industry, with freight rates for the smaller dry bulk segments faring better than those in the Capesize market. April has provided some relief for the struggling Capesize markets, although rates for all ship types remain below break-even levels.
Capesize earnings have been well below the average USD 15,300 per day needed to break even, falling to just USD 1,992 per day, its lowest level since March 2016. While the smaller vessel sizes did not reach such a low point, earnings only reached break-even levels for a brief period, with most of the year at loss making levels.

The importance of China to the dry bulk market was clearly reflected when it went into lockdown, as the rates went downwards and, since its reopening, it has provided some upwards support to volumes, but the low rates remain. Volumes of China’s major dry bulk imports have posted year-on-year growth throughout the crisis. Iron-ore imports are up 5.3% and coal up an impressive 27.8% in the first four months.

The poor US exports spoil the picture of strong grain exports from the Americas. As data is released for each new month, the failure of the “Phase One” trade agreement between the US and China becomes more and more obvious.
Even before the Covid-19 outbreak, January exports saw no boost, and this has only worsened since then. In the first quarter of the year, only 3.1 million tonnes of agricultural goods have been exported from the US to China – less than 10% of the 33.4 million tonnes that China committed to buying at the start of the year.

Fleet news
Since the start of the year, the dry bulk shipping fleet has grown by 1.6% to reach 891.5m DWT on 19 May. BIMCO expects the fleet to grow by 3% in 2020, and we expect a further 39.3 million DWT to be delivered to the market through the rest of the year. This reflects a higher slippage rate for planned deliveries because of the Covid-19 disruptions, which has risen to 35% from 25% before the crisis.
Demolitions have also been disrupted by the pandemic, with the major shipbreaking nations having closed their beaches to ships because of their lockdown measures. This resulted in only one dry bulk ship being demolished in April, a 28-year-old ore carrier with a capacity of 268,132 DWT. The easing of some of the measures allowed 3 ships to be demolished in May, bringing total dry bulk demolition so far this year to 5.4 million DWT.
As a result of the poorer outlook for the dry bulk market this year, BIMCO has revised upwards its demolition expectations for the dry bulk market to 14m DWT, from 12m.

Even as China, the biggest driver for the dry bulk industry recovers, the full scale of the demand shock for the dry bulk industry remains to be seen.

Source: https://www.hellenicshippingnews.com/dry-bulk-shipping-no-quick-recovery-for-the-dry-bulk-market-as-covid-19-digs-deeper/