LOW growth supply is likely to be a driver of the dry bulk market next year, according to Arrow Shipbroking.

New deliveries are expected to slow significantly over the next two years, leading to a sharp drop in fleet growth, it said in its outlook presentation, and despite higher contracting this year, the orderbook is at the lowest level since 2005.

Average trade growth of 2.5% per year between 2022 and 2024 would outweigh a fleet expansion of 2.1% over the same period, which should support vessel earnings, it said.

The widest gap in trade to fleet growth in 2022 was in the handysize segment, at a respective 4.9% versus 0.9%, followed by supramax, and panamax. Capesizes had the narrowest ratio, at 2.1% versus 1.9%, the brokerage's research showed.

Although trade growth momentum might have peaked, demand was still exceptionally strong, said Arrow’s head of research Burak Cetinok.

Minor bulk exports showed the biggest growth in the first 10 months of this year, gaining by 138.8m tonnes, followed by coal, which increased by 80.9m tonnes versus the same period in 2020. Iron ore showed a decline of 1.4m tonnes.

While demand in China for dry bulk commodities grew by 20.4m tonnes in January to October, demand in the rest of the world surged by 208m tonnes, and the short-term headwinds in China should turn into tailwinds next year, Mr Cetinok said.

The Chinese economy slowed from the third quarter of this year due to several factors, including flooding and power shortages which curtailed industrial output and new waves of the coronavirus outbreak which led to lockdowns.

In addition, authorities imposed steel production cuts in a bid to cool rising commodity prices as well as cut emissions, while the Evergrande woes accelerated an already cooling property market, eroding confidence among home buyers.

“While there is no significant change in China’s dry bulk demand in the short-term, the situation is likely to improve after the winter Olympics in February, as we expect the Chinese government to step up its efforts in shoring up the economy,” Mr Cetinok said.

Adding stimulus now would only intensify inflationary pressures due to commodity supply shortages, which has led to price rises across the board, he added.

Iron ore stockpiles at ports in China are at their highest since 2017, climbing towards the 160m tonnes level, Arrow research showed, as steel output plummeted following a very strong first half of the year.

Inefficiencies also played a significant role in the strong dry bulk market this year as the average non-sailing days rose due to congestion.

How quickly the congestion unwinds will dictate market direction, he said.