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Dry bulk sentiment sours as spot rates continue to slide

Capesize and supramax rates fall to Q1 levels; panamax rates sink to year-to-date low

Any positive dry bulk sentiment from China’s stimulus announcement has already evaporated. Chinese iron ore and coal stockpiling, together with route disruptions, propped up the market earlier this year, but support is starting to fade, with supply outweighing demand

DRY bulk rates continue to fall, in some cases to year-to-date lows. Hopes for a seasonal upswing in the fourth quarter are fading, and sentiment on 2025 is worsening due to a lack of faith in China’s economy.

The Baltic Exchange’s C5TC capesize index fell to just $16,654 per day on Tuesday, down 46% from September 27 to levels seen in the first quarter, traditionally the segment’s weakest period. The 4Q24 capesize forward freight agreement (FFA) contract has fallen to $20,400 per day, down from $29,000 per day at the end of last month.

Analysts and brokers have pointed to a number of near-term headwinds for capesizes.

Jefferies analyst Omar Nokta noted that imported iron ore prices are approaching parity with Chinese domestic prices, with the discount on imports falling to just $3 per tonne versus $15 per tonne in August and September.

Brokerage BRS cited the temporary halt in bauxite exports by Emirates Global Aluminium in Guinea due to customs issues, as well as the closure of Vale’s Sepetiba iron-ore port until January.

The Baltic’s P5TC panamax index declined to $11,339 per day on Tuesday, a new low for the year. The S10TC supramax index dropped to $13,747 per day, its lowest point since late February.

 

 

‘We see a lot of dark clouds’

The outlook for dry bulk has been discussed at recent shipping conferences — and if you listened to different panels, you heard different stories.

At a Capital Link event in China on October 21, panellists voiced optimism on the sector and on China’s continued positive role as a demand driver. Not so at the Capital Link event in New York on October 16, where the commentary was decidedly more negative.

“The steel industry is still struggling on the basis of a flailing real estate industry,” said Jorgen Lian, analyst at DNB Markets, at the New York event.

Peter Weernink, founder of Swiss Marine, said dry bulk rates have only been strong this year due to Chinese stockpiling of iron ore and coal, combined with various disruptions that decreased fleet efficiency.

“Considering that the stockpiling has to end at some point, the tailwinds that have been in place might reverse,” said Lian.

According to Weernink: “If you talk about the next few months, and next year, we see a lot dark clouds. To us, China, which is a big part of our market, is ex-growth. There will be growth elsewhere in Asia, but on a completely different scale.

“If you look at what’s ahead of us, it’s hard to be optimistic,” he said, citing research reports forecasting a 50m-tonne to 100m-tonne reduction in seaborne coal exports next year. “Even if we have a 20m-tonne or 30m-tonne reduction in coal shipments, we will have a weak year. So, I tend to be more negative.”

Weernink also noted that China was on track for 100m tonnes of steel exports for the first time since 2015-2016, a period when dry bulk rates were very weak. High Chinese steel exports imply weakness in domestic demand.

Mads Boye Petersen, chief operating officer of Pangaea Logistics, said Chinese steel exports are positive for the smaller bulkers his company operates. However, he added: “If China could consume that steel all by itself, that would be a better overall picture than exporting it. That’s not a good sign, in a sense that they’re keeping [imports] to support their steel business.”

Waiting for a bazooka, getting a peashooter

Speakers at the Capital Link event in New York were also negative on China’s recent stimulus, sentiments echoed in recent broker reports.

“We keep waiting for bazookas and we’re getting peashooters,” said Navios Maritime Partners vice-chairman Ted Petrone.

According to Lian: “As soon as there’s something on China stimulus, the market thinks it’s directly positive for dry bulk shipping, and it usually has been, but this time they were very explicit in saying they wanted to limit construction activity.”

He added: “The scary thing is that new construction projects are down 60% from the peak.”

BRS said: “China’s stimulus package does not appear to be boosting the [capesize] segment’s fortunes as other factors appear to be offsetting Beijing’s announcement.”

The latest stimulus is “meant to boost consumer confidence [but] the real estate crisis, combined with deflationary pressures, appear to be a millstone to China’s economic rebound”, said BRS.

Confidence in stimulus upside “is lacking, since homebuyers, investors and consumers are reported to be hesitant without additional effective policies. It appears that property market participants will not be lured by incomplete statements and thus economists believe a tremendous additional fiscal stimulus package is required to properly boost the nation’s stuttering economy”, it added.

According to Allied Shipbroking: “Any positivity following the Chinese stimulus announcements appears to have been short-lived. Over recent weeks, the number of capesize vessels on ballast has been rising, particularly in the Pacific, where the number of vessels was about 15% above the level from the start of the month, highlighting the imbalance between supply and demand.”

Dry bulk stocks falling

Waning sentiment in dry bulk markets is reflected in share prices of US-listed bulker owners, which have declined roughly 15% in October to date. These stocks have already given back most of their year-to-date gains.

Golden Ocean is the best performer. Its adjusted share price is still up 22% year to date, although its price is back to levels seen in February. Safe Bulkers is still up 15% year to date, with pricing also back to February levels.

Genco is up only 7% year to date, and Star Bulk — the largest US-listed bulker owner by market cap — is up only 3%. Both are back to January levels. To put these moves in perspective, the SPDR exchange-traded fund, which tracks the S&P 500 and is a measure of the broader US stock market, is up 25% year to date.

The performance of the Breakwave Dry Bulk Shipping ETF (BDRY) offers a bearish signal on dry bulk stocks. BDRY is an exchange-traded fund that buys near-date dry bulk FFAs, and thus tracks the freight market more closely than stocks of bulker owners.

BDRY is down 25% year to date, and has fallen 22% since the beginning of October, which could suggest that equities of bulker owners have yet to fully price in the market decline.

 

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