Dry Bulk Demand Quarterly Review | 2022

Posted by
Maria Bertzeletou
May 10, 2022

With Signal Ocean Data, we analyze the evolution of ton days growth for the major dry bulk vessel class categories and we take a look at major cargo flows with a significant impact on the trends of seaborne demand

The current year presents year to date an overall slower dry bulk demand growth in ton days with an aggressive downward correction seen from March onwards. Looking at 2021, the first half was not promising for the performance of freight rates as the dry bulk demand was also in a downward trend. The spike emerged at the end of the third quarter that along with the massive volume of port congestions around China drove freight rates to remarkable levels

In graph 1, we can see the total growth of dry bulk demand in ton days for all vessel class categories in comparison to 2021 and the sharp decrease we described above, especially with the onset of geopolitical tensions between Russia and Ukraine. It seems that the second quarter will end with significantly slower growth than the first three months as there is a sustained decreasing trend till the first days of May. 

Graph 1| Data Source: The Signal Ocean Platform, Ton Days, Period 2021-22The TonDays time-series graph presents the laden days of the seagoing and stopped vessels for the user-selected vessel class range that have loaded (Area From, All Areas) and discharged (Area To All) the selected areas. We define TonDays = Deadweight * VoyageDays VoyageDays = LastDischargeSailingDate - FirstLoadStartTimeOfOperation. To compute the TonDays time-series, we aggregate for each day the TonDaysPerDay for all the seagoing and stopped vessels.

There is currently a holding uncertainty for the future of dry bulk demand as we are in the front of a zero-COVID policy in China with questions on how serious the current wave can be as the rise in daily cases is mainly due to the Omicron variant. There are mixed concerns on how Chinese policy will change as more infections are detected across the country with most of the principal elements of the zero-COVID policy remaining in place. The ongoing threat is whether China will defeat the slower economic growth for this year when Chinese iron ore imports remained almost flat during January-February at almost similar levels to the previous year at around 181.1M tons vs 181.5M tons a year ago.

In March, Chinese iron ore imports lowered, according to Chinese customs authorities, to 87M tons, with a 15% annual decrease.  Overall, iron ore imports for March were 4% lower than the 5-year average of 91 M tons. For the first quarter,  total iron ore imports reached 268M tons, compared to 284 MMT in 2021(a 5% decrease). It is important to note that additionally there is high anxiety about Chinese iron ore demand as there are plans for a reduction in steel production this year so the economy can meet its target to control carbon emissions. 

With all said above, estimates for the growth of the world’s second-largest economy have been cut to lower levels than earlier this year. Fitch Ratings in their latest estimate of May slashed their forecast for China’s 2022 GDP growth to 4.3% against the previous estimate of 4.8. However, the agency revised slightly higher its 2023 growth forecast to 5.2%, from 5.1%, on the assumption that the government will phase out its ‘dynamic zero-Covid’ policy gradually over the course of next year.

Demand in Ton Days Growth| Period 2021-2022

The Bigger Picture Vs Supramax

It is true that the growth of the Chinese economy is at risk given the latest estimates, however, it is interesting that the evolution of ton days growth in the Capesize segment (Graph 2) is in an upward trajectory from April onwards, however, the growth persists sharply lower than the levels of last year. We are cautious about the future growth due to the challenges aforesaid although it is a positive signal for Capesize freight rates that the demand seems to be gradually recovering from the constant decrease of growth seen in the March-April period. 

Graph 2| Data Source: The Signal Ocean Platform, Capesize, Ton Days, Period 2021-22

In a comparison with Capesize, demand ton days growth for Supramax has not yet shown signs of an upturn. The existing trend is decreasing to levels lower than last year and the current evolution appears to continue at a similar pace as the previous month. (Graph 3)

Graph 3| Data Source: The Signal Ocean Platform, Supramax, Ton Days, Period 2021-22

This year's evolution trend per Vessel Class - Cargo Flows

With a focus on the evolution of this year, we can see in Graph 4 that the Capesize has already started the upward cycle, while Panamax demand growth in ton days is still in a persistent downward trend. At the same time, looking at the smaller vessel class categories, the Handysize segment now seemed to exit from the downward trend compared to weaker growth evidenced in the Supramax segment.

Graph 4| Data Source: The Signal Ocean Platform, Major Dry Bulk Vessel Class Categories, Ton Days, Period 2021-22

Looking at the cargo flows, (Graph 5), we noticed that in the Capesize segment, there is an improved flow from Brazil to China in March-April, while monthly cargo volumes from Australia stood at similar monthly levels to last year. The latest estimates on cargo flow support the revival we have seen lately in the demand for Capesize vessels in the seaborne iron ore transportation with a positive impact on the direction of freight rates.

Graph 5| Data Source: The Signal Ocean Platform, Capesize, Monthly Cargo Flow from Brazil/Australia to China, Period 2021-22

In smaller vessel class categories, (Graphs 6 & 7), Russia and Ukraine have played a crucial role in the evolution of ton days from February onwards as we see sharp while the major blockades at Ukrainian seaports have caused the monthly volume of flows to standstill. 

Graph 6| Data Source: The Signal Ocean Platform, Supramax, Russian/Ukraine Monthly Cargo Flow to All, Period 2021-22
Graph 7| Data Source: The Signal Ocean Platform, Handysize, Russian/Ukraine Monthly Cargo Flow to All, Period 2021-22

What’s Next

The ongoing geopolitiical tensions has hampered the dry bulk demand dynamism. Ukrainian port closures are impeding the monthly cargo flows while Russia seems to still sustain its share of exports even of smaller magnitude. The last month signalled sharp decrease in ton days' growth for overall dry bulk demand, stemmed mainly from the smaller vessel class categories, while there are already signs for an upturn in the Capesize segment. It remains to be seen whether the growth of ton days of the Capesize segment will hold the recent revival and rebalance the downward trend seen in other vessel sizes. It remains in doubt whether the growth of dry bulk demand will return to higher growth rates from May onwards or will sustain the downward revision seen with the onset of the second quarter. 

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