Panamax demand leading the dry bulk recovery & other BDI updates

26 June 2017, Global – We track the latest shipping demand and freight rate trends in the global dry bulk shipping market. Overall, Japan and China demand is helping to lift vessel chartering demand and spot freight rates, with the recent rebound in the BDI mainly led by the Panamax vessel segment. The Chinese ports’ record high iron ore inventory levels could impede Capesize shipping demand near term unless China’s steel output growth accelerates further. Meanwhile, the global dry bulk supply growth ytd is also tracking in line with our forecasts, pointing to a gradual and moderate recovery.

  • Freight rates trend – Panamax and Handy rates improved which offset the weaker Capesize market: The Baltic Dry Index (BDI) rebounded 2% w/w to 870 and was 46% higher y/y. This was mainly driven by the improving Panamax market. The Panamax index surged 18% w/w while the Supramax and Handysize indices also rose 6% and 4% respectively w/w. In contrast, the Capesize market weakened, with the index down 19% w/w.
  • Vessel chartering trends – with the exception of the Supramax market, shipping demand increased w/w, particularly in the Panamax segment: The number of Panamax vessels chartered in the spot market surged 39% w/w and 33% y/y, mainly driven by Japan demand. More Handysize vessels were chartered in the spot market during the week, up 33% w/w and 60% higher y/y, with greater market demand in the Atlantic region although China and India demand also increased. More Capesizes were chartered in the spot market (up 16% w/w but 12% lower y/y), mainly driven by firm China demand but there were fewer shipments elsewhere. Only the Handymax market saw a decline in ship chartering interest from Singapore-Japan, Thailand and Europe.
  • Meanwhile, the global dry bulk shipping capacity has risen 2.0% ytd to 810 million dwt at the start of June 2017. This is 3.9% higher y/y. If we were to annualize the ytd capacity growth, the global dry bulk shipping capacity growth is likely to be 4.8% in 2017, trending in line with our 4.9% capacity growth forecast.
  • We expect the global dry bulk shipping sector capacity to grow 4.9% y/y in 2017, slightly ahead of our forecast global dry bulk shipping demand growth of 4.3% this year. This, plus the industry oversupply accumulated in the historical years, could prevent freight rates and the BDI from rising more significantly than their current levels. 
  • We believe the industry will see more significant improvements from 2018 and 2019 when the global fleet capacity growth is expected to moderate markedly to 2.1% and 0.9% respectively, unless a significant number of new vessel orders with prompt delivery dates are placed going forward. This will help drive greater upside in the dry bulk shipping rates as we expect the global dry bulk shipping demand to grow 3.5% in 2018 and 3.0% in 2019, ahead of the global dry bulk shipping capacity growth.

CAPESIZE MARKET

+ Freight rates trend – weaker: The Baltic Exchange Capesize Index (BCI) fell sharply by 19% w/w.

+ Trade flows trend – China demand still firm but fewer shipments elsewhere: More Capesize vessels were chartered in the spot market during the week, up 16% w/w but 12% lower y/y. 74% of the Capesizes were chartered to carry iron ore, 16% were chartered to carry coal and the remaining 10% others. 53% of the Capesizes are loading from Australia, 12% from Brazil and the remaining 35% from other countries. 70% of these vessels are carrying these cargo to China, 7% to Japan and the remaining 23% to other countries. 

+ Demand-supply trend – supply growth is moderate but China’s already high iron ore inventory levels at ports could impede imports near term: We expect the Capesize market to improve, mainly driven by our projected iron ore shipping demand growth of 4.4% in 2017 and 4.0% per annum in 2018 and 2019 which is slightly ahead of our projected net capacity growth in the Capesize vessel segment of 4.1% and 3.8% in 2017 and 2018 and well above our projected net capacity growth of 1.9% in 2019 based on the existing newbuild vessel orders.

However, as discussed in our previous reports, the record high iron ore inventories at China’s ports could impede the iron ore shipping demand near term, unless steel production growth accelerates further. China’s iron ore inventories has risen 2% w/w and 35% y/y to 141 million tons as at 23rd June 2017.

Chart: Global iron ore shipping demand versus Capesize segment capacity growth (2000 to 2019)

Chart: Global iron ore shipping demand versus Capesize segment capacity growth (2000 to 2019)

Chart: Iron ore inventory levels at China’s ports (2012 to 2017)

Chart: Iron ore inventory levels at China’s ports (2012 to 2017)

PANAMAX MARKET

+ Freight rates trend – strong recovery continued since early June: The Baltic Exchange Panamax Index (BPI) rebounded 18% w/w.

+ Trade flows trend – busy vessel chartering week, mainly driven by Singapore-Japan shipping demand: The number of Panamax vessels chartered in the spot market surged 39% w/w and 33% y/y. 18% of the Panamaxes are loading from Indonesia, 13% from Australia, 10% from South America and the remaining 59% from other countries. 41% of these vessels are carrying these cargo to Japan or Singapore-Japan, 18% to China, 8% to India and the remaining 23% to other countries. 

+ Demand-supply trend – capacity growth is likely to outpace shipping demand: We expect the Panamax market to face continued industry oversupply challenges based on our projection that the Panamax market’s net capacity will grow 4.0% y/y in 2017. Although we expect the global coal shipping demand to improve this year, rising 2.5% y/y, the improving volumes are unlikely to be sufficient to offset the additional shipping capacity coming onstream. We expect 2018 and 2019 to be better years for the Panamax market as capacity growth decelerates to 1.4% and 0.1% respectively, below our projected coal shipping demand growth of 2.3% and 1.4%, supporting freight rate recovery in the Panamax segment. 

Chart: Global coal shipping demand versus Panamax segment capacity growth (2000 to 2019)

Chart: Global coal shipping demand versus Panamax segment capacity growth (2000 to 2019)

HANDYSIZE & HANDYMAX MARKET

+ Freight rates trend: The Baltic Exchange Supramax Index (BSI) rose 4% w/w while the Baltic Exchange Handysize Index (BHSI) rose 4% w/w.

+ Trade flows trend – China shipping demand dominated the Handymax market; the Atlantic basin was slightly more active than the Pacific for the Handysize market last week: In the Handymax market, the number of chartered Handymax vessels fell 16% w/w but was 13% higher y/y in the spot market during the week. 42% of these vessels are carrying these cargo to China, 15% to India and Bangladesh, 12% to Japan or Singapore-Japan and the remaining 31% to other countries. 

In the Handysize market, more Handysize vessels were chartered in the spot market during the week, up 33% w/w and 60% higher y/yMarket demand was slightly more active in the Atlantic region although China and India demand also increased.

+ Demand-supply trend – Handymax market is likely to face greater oversupply challenges: We expect the Handymax market to be the least favourable market among the various dry bulk vessel segments this year with continued industry oversupply while the Handysize market is likely to suffer from slightly oversupply. On a combined basis, we expect the Handymax and Handysize segments’ net capacity to grow 6.4% y/y this year, surpassing our projected minor bulks shipping demand growth of 4.8%. However, this situation is expected to reverse from 2018 where we expect net capacity to decelerate to 0.8% in 2018 and 0.3% in 2019 versus our projected minor bulks shipping demand growth of 3.5% and 2.9% respectively, supporting freight rate recovery in the smaller vessel segments in the longer term. 

Chart: Global grains and minor bulks shipping demand versus Handymax and Handysize segments capacity growth (2000 to 2019)

Chart: Global grains and minor bulks shipping demand versus Handymax and Handysize segments capacity growth (2000 to 2019)

GLOBAL DRY BULK SHIPPING SUPPLY GROWTH YEAR-TO-DATE IS TRENDING IN LINE WITH OUR FORECAST

The global dry bulk shipping capacity has risen 2.0% ytd to 810 million dwt at the start of June 2017. This is 3.9% higher y/y. If we were to annualize the ytd capacity growth, the global dry bulk shipping capacity growth is likely to be 4.8% in 2017, trending in line with our 4.9% capacity growth forecast.

We expect the global dry bulk shipping sector capacity to grow 4.9% y/y in 2017, slightly ahead of our forecast global dry bulk shipping demand growth of 4.3% this year. This, plus the industry oversupply accumulated in the historical years, could prevent freight rates and the BDI from rising more significantly than their current levels. 

We believe the industry will see more significant improvements from 2018 and 2019 when the global fleet capacity growth is expected to moderate markedly to 2.1% and 0.9% respectively, unless a significant number of new vessel orders with prompt delivery dates are placed going forward. This will help drive greater upside in the dry bulk shipping rates as we expect the global dry bulk shipping demand to grow 3.5% in 2018 and 3.0% in 2019, ahead of the global dry bulk shipping capacity growth.

Chart: Baltic Dry Index (BDI) versus Global dry bulk shipping ton-mile demand and supply growth (2000 to 2019)

Chart: Baltic Dry Index (BDI) versus Global dry bulk shipping ton-mile demand and supply growth (2000 to 2019)

Implications on the dry bulk shipping stocks listed in the Asia Pacific

The dry bulk shipping stocks listed in the Asia Pacific have historically had a positive correlation (of 0.66) with the Baltic Dry Index as well as the Baltic Exchange Indices of each major vessel segment (BCI, BPI, BSI and BHSI). Their share prices could tick up if the BDI rebounds further.

Chart: Crucial Perspective Dry Bulk Shipping Stocks Index versus Baltic Dry Index

Chart: Crucial Perspective Dry Bulk Shipping Stocks Index versus Baltic Dry Index

Related Articles:

“Belt and Road” Initiative’s impact on global dry bulk shipping and other BDI updates

Global Dry Bulk Shipping Outlook – Is the current Baltic Dry Index (BDI) rally sustainable?

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