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DRY BULK QUARTERLY: Freight rally could last till Q4 amid COVID-19 protocols

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Platts Market Data Metals

DRY BULK QUARTERLY: Freight rally could last till Q4 amid COVID-19 protocols


Congestion, COVID-19 protocols hold up ships

Dry bulk ships pocketing containerized cargoes

Ton-mile demand up on diverse cargo supply origins

The rally in the dry bulk market seen during Q3 saw freight rates hit a decade high due to congestions caused by stringent COVID-19 protocols and weather-induced supply tightness, while demand stayed robust.

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As the market moves into Q4, which is typically the strongest period of the year, participants expect the fundamentals to remain sound and freight rates to stay elevated and volatile as well, as vessel itineraries could be disrupted by fluid COVID-19 protocols that are enforced at various ports.

The dry bulk market is also benefiting from the firm container rates. The trend of employing dry bulk ships to move containers and cargoes that were containerized over past decades is expected to carry on into 2022, sources said.

The Platts Cape T4 Index -- a trade flow based weighted average of four key Capesize routes, averaged $50,057/d in September 2021, the highest since it was launched in November 2019.

Similarly, the KMAX 9 and APSI 5 indexes – which are trade flow based weighted average of nine Kamsarmax routes and five key Supramax routes within the Asia Pacific -- averaged $33,553/d and $34,708/d respectively.

Tonnage supply tightness

According to market estimates, the COVID-19-related protocols that are being followed at Chinese ports require vessels to be quarantined for seven to 28 days, and has led to roughly 5% of dry bulk fleet being held up.

Regarding the spot market, a China-based shipbroker said that many ships were being delayed especially at the Yangtze River ports. The source added that some ports were prioritizing container ships over dry bulk carriers.

Adding to the delays were the power cuts at a few Chinese ports, which market sources said was slowing down the turnaround times for Capesize and Panamax ships, which rely on shore-based facilities to discharge their cargoes.

Ship supply is also expected to stay tight given the thin newbuilding order book. "Demand is currently outpacing vessel supply, which will remain low for years with shipyard orders mostly led by container ships," said a ship-chartering source of a mining company.

According to data from S&P Global Platts Analytics, a total of 1.82 million dwt of dry bulk ships were delivered as of August 2021 and there remains 58.13 million dwt of ships in the order book, 6.2% of the current trading fleet.

Demand stays steady

Despite a drop in iron ore prices over August and September, shipping market sources expect major iron ore producers to meet their annual production guidelines. While iron ore remains the major demand generator for Capesize ships, there is also an increase in the amount of coal moved on the largest dry bulk carrier.

Over January-August, China imported 194.4 million mt of coal while Indian imports added up to 99.15 million mt, according to market estimates.

A second shipbroker said that coal demand from the EU was also strengthening and backhaul orders were increasing.

There has been an increase in the ton-mile demand for dry bulk ships with buyers diversifying the origins of their iron ore and coal supplies. China has been importing these commodities more from the US, Canada, and South Africa, while Australia has replaced Indonesia as the largest supplier of coal to India.

Panamax class ships have managed to get a share of the heightened coal demand on the longer routes, while demand from agricultural products continued to support their rates.

China imported 67.1 million mt of soy bean, up 3.7% on the year, and 39 million mt of grains including corn, wheat, barley and sorghum, up 185.3% on the year, as of August, Chinese customs data showed. Market players expect another surge in shipments from the US and also Australia over Q4 2021 and Q1 2022.

Supramax and Handysize ships have drawn strongly on the firm container rates and steady intra-Pacific movement of coal. The shipments of steel have risen on the back of burgeoning infrastructure investments from governments across the world, which has increased demand for these geared ships.