FREIGHT rates in the dry bulk shipping sector are expected to improve in the second quarter of next year as iron ore demand in Asia picks up, according to Drewry.

It says Chinese steel production is expected to be ramped up by the end of the winter, when production curbs will have been relaxed.

At that point next year, robust infrastructure and construction activity will provide another boost to steel consumption.

In the meantime, Chinese authorities are shutting down less productive and more polluting steel mills, which should allow more-efficient facilities to fabricate higher-quality steel, and in turn increase demand for high-grade iron ore imports, Drewry says in a new report.

In the longer term, China’s Belt and Road initiative will continue to drive demand for dry bulk shipping, the shipping consultancy says, as the authorities look to heavily invest in infrastructure development along the old 16^th-century silk route from China through Central Asia and the Middle East to Europe. On the maritime route, China will attempt to link up to Southeast Asia and East Africa.

The mega project will see the construction of new ports, roads, railways, power plants and pipelines.

“This highly ambitious project will create strong tailwinds for dry bulk shipping, taking into account the massive planned infrastructure development undertaken by the Chinese government, which can entail an expenditure of up to $8trn by 2020,” said Drewry.

With regard to supply, Drewry expects the global dry bulk fleet to grow moderately in the years ahead because although higher charter rates are leading owners back to ordering newbuildings, fleet growth will be capped by the thin orderbook as well as global emissions regulations that imply low deliveries in the short term and high demolition activity in the long term.

Thus a substantial chunk of the orderbook will be replacement tonnage that will not add to the global fleet.

In the immediate term, though, Drewry is bearish on the market as the Chinese authorities slash steel production between November and March next year to limit pollution from coal burning in the winter. This will affect iron ore demand in the short term.

As stated in its policy plans, the authorities could set a 50% cut on current steel production at 40m tonnes.

However, Drewry’s lead analyst for dry bulk shipping Rahul Sharan says: “We believe a 25% cut is more achievable, in which case there would be a reduction of 20m tonnes of steel production, which as a result, would reduce demand for iron ore. Even though iron ore demand will remain strong in other Asian countries, such as South Korea and Taiwan, we do not expect this demand to be strong enough to offset the impact of reduced demand from China.

“In brief, the next few months notwithstanding, a bright future is expected for the dry bulk charter market, providing solace to shipowners and shipyards alike.”