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Dry bulk rates handed temporary lift from congestion

While congestion is expected to ease into next year, it will still likely be at high levels versus previous years due to the coronavirus-effect

Bulker owners are enjoying ‘spectacular’ earnings due in part to congestion, with a profitable market expected to continue for a large part of 2022, says BIMCO analyst

CONGESTION is providing “very powerful temporary support” to dry bulk spot rates, allowing owners to enjoy “spectacular” earnings, according to BIMCO.

Peter Sand, the shipowner association’s chief shipping analyst, expects profitable earnings for “a large part of 2022,” depending on how long it takes for the congestion-related supply squeeze to unwind.

“We are quarters away from that,” he told a webinar event.

The number of ships waiting for more than 50 days has dwindled to a trickle, while about 250 bulkers have been waiting to enter Chinese ports for five-10 days, and a further 480 have been in a queue for up to five days. 

Congestion has caused a supply squeeze amid low newbuilding deliveries this year, according to Hong Kong Ming Wah Shipping’s general manager James Ding Lei.

While port congestion may improve next year, it will still be at high levels compared with previous years, he said.

The overall fleet growth rate is expected to drop by 0.4% this year, while the growth rate for smaller vessels is lower than the larger sizes, which is actually supportive of a better performance from the smaller segments, he said.

He was optimistic for the dry bulk market through the first half of next year, with the next low point perhaps occurring in 2024 given that the market is now operating in four-year cycles.

However, while the world resumes activity following the coronavirus situation, China faces downward pressure, with investments in fixed assets such as real estate, manufacturing and infrastructure dropping since about the middle of this year.

Dry bulk demand is thus expected to grow at lower rate next year, down to 2% from 3.6% this year, he said.

Iron ore is estimated to grow by 1% next year from 2% this year, while the growth in coal could come in at 1% from 4%. Minor bulks, meanwhile, could expand by 2% from 3%.

Separately, the World Steel Association estimates that China’s steel output will decline by 1% this year versus 2020.

After a strong first-half, the country decelerated, with declines since July due to adverse weather and infections, combined with the “slowing momentum in real estate sector and the government cap on steel production”.

“Real estate activity has weakened due to tough government measures on developers’ financing introduced in 2020. At the same time, infrastructure investment has not picked up in 2021 due to a depletion of investment opportunities and limited local government financing ability. Furthermore, the strong manufacturing recovery across the world has reduced the export market.”

No growth in steel is expected in China in 2022. 

Developed nations have bounced back to almost pre-pandemic levels this year, with steel demand increasing by 12.2%, with further growth of 4.3% in 2022, the group said in its short-term outlook report. 

Overall, steel demand is estimated to rise by 4.5% this year, and 2.2% in 2022. This compares with growth of 0.1% in 2020. 

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