Dry bulk freight rates at multi-year lows

Spanish Market: Coal, Metals, Petroleum coke
13/02/23

Freight rates for dry bulk vessels are at multi-year lows as tepid global demand for commodities like iron ore and thermal fuels is leaving large gluts of tonnage in the Atlantic and Pacific basins, causing some shipowners to hide the positions of their ships to avoid further downward pressure.

Warm weather conditions globally have kept coal demand muted, while Chinese steelmaking output has yet to recover following the lifting of Covid-19 steel factory closures as the country's real estate crisis hampers new construction projects, keeping iron ore demand on ice.

The resultant glut in Panamax and Capesize tonnage and subsequent competition among shipowners in the Atlantic and Pacific basins have pushed the market heavily in charterers' favor, with most Atlantic basin Panamax voyages now being fixed basis one-way voyages rather than the typical round-voyage system, dropping the $/t paid by charterers on the routes.

"We know many shipowners are keeping positions off-market to minimize further damage," a shipbroker said.

Panamax and Capesize bulker $/d rates for US loading, Europe-bound voyages have stayed at or below operating expense levels, typically around $6,000/d for these segments, since 6 February. This likely means that many shipowners without sulfur-scrubbing technology installed on their vessels need to choose between laying up their vessels temporarily or accepting near-zero returns at best from charterers.

Rates for Supramax bulkers carrying "minor bulk" cargoes like petroleum coke, used in the manufacture of cement, are facing similar pressure as high global inflation has pushed the cost of new construction projects higher for major cement producers like India. Production of the building material in the country typically increases after the monsoon season finishes in September, but cement stockpiles remained high at the start of the year amid subdued construction demand.

Rates for Panamax bulkers loading coal in the US east coast for delivery in Rotterdam hit $9.65/t today, while rates for Supramax bulkers loading petroleum coke in the US Gulf coast for delivery in east coast India hit $34.25/t today, the lowest rates since July 2020, just after the onset of Covid-19 significantly cut Chinese demand from the market, representing 60pc drops each from highs hit amid heavy global port congestion during 2021's third and fourth quarters.

Rates for Capesize bulkers loading coal from the US east coast for delivery in Rotterdam hit $9.55/t on 7 February, the lowest rates since December 2020, representing a drop of 70pc from highs hit during the same period of heavy port congestion in 2021.

By Ross Griffith

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