- Limited Capesize fixing activity in the first week of the New Year.
- Chinese steel demand declines due to winter weather and seasonality.
- Anticipated multi-year rebound in China’s economic activity.
The first week of the New Year showed limited activity in Capesize fixing. Geographically, the Pacific spot market weakened to below 20,000, while the Atlantic remains short in tonnage, boasting spot rates above 40,000 for N. Atlantic routes in January, reports Breakwave.
Futures vs. Spot Market
Despite strong first-quarter contract indications at the highest level in over a decade, the futures market anticipates a significant deterioration in the spot average. Contrary to expectations, the spot market is likely to trend towards futures, reflecting a natural progression of the seasonal cycle and weather patterns affecting demand for bulk transportation.
Market Confidence and Seasonal Factors
The confidence in the market for a robust year beyond Q1 is evident, with implied 9-month Capesize futures sitting at almost 20,000.
The recent increase in spot rates is attributed to weather-related issues and disruptions in the Red Sea, but the futures market suggests an improved underlying demand/supply balance for the year.
Winter Impact on Steel Demand
As winter settles in the Northern Hemisphere, Chinese steel demand experiences a notable decline, reaching multi-year lows. Iron ore prices, however, remain firm, anticipating a demand recovery and tight inventory levels.
Government Policies and Economic Stimulus
Despite numerous policies enacted to stimulate the economy in the previous year, the impact on economic activity is limited, with PMI numbers in contraction territory and housing prices trending bottom. Optimism persists, but evidence is scarce. Attention turns to the Chinese government’s policies regarding the real estate market and the broader consumer economy, with anticipation building ahead of the annual parliament meeting in March.
Geopolitical Uncertainty and Global Trade
Recent years have been marked by increased geopolitical uncertainty. Going forward, such events are expected to continue impacting global trade, contributing to meaningful fluctuations in effective vessel supply.
China’s Economic Activity and Shipping Industry
Anticipating a potential multi-year rebound in China’s economic activity, dry bulk shipping is poised for higher volatility. Secular tightness is foreseen, driven by increasing demand for bulk commodities and slower fleet growth due to a relatively low order book.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe
Source: Breakwave
