The Baltic Dry Index has been trading within a narrow range over the past few weeks, closing on Friday at 1,890 points. After a brief attempt to break the 2,000-point mark earlier in September, the index has mostly moved sideways. Despite this, it remains significantly higher compared to both early August 2024 and early September 2023 levels. However, a closer look at the sub-indices tells a more nuanced story, reports Breakwave Advisors.
Grain Trade Routes
On the key grain trade routes, China’s soybean imports reached a peak in August, with LSEG trade data tracking 11.08 million tonnes of soybean imports, while Customs data reported a slightly higher figure of 12.14 million tonnes. Brazil dominated the supply, accounting for 9.41 million tonnes, followed by Paraguay with 1.08 million tonnes and Uruguay with 0.78 million tonnes.
Notably, LSEG recorded minimal imports of US soybeans during the month. Looking ahead to September, China’s soybean imports from Brazil are projected to decline to 7.79 million tonnes, still the highest for that month historically. Imports from Argentina are expected to be halved to 0.36 million tonnes, while Uruguay’s shipments will remain relatively high at 0.56 million tonnes. Overall, total September imports are forecasted to decrease from August’s peak, down to 8.86 million tonnes.
For the first eight months of 2024, China imported 70.48 million tonnes of soybeans, a 2.8 percent increase year-on-year, according to Chinese Customs data. South American origins, particularly Brazil, Argentina, and Uruguay, accounted for 80.6 percent of these imports, a significant jump from 70 percent last year. This surge in imports in an attractive price environment has led to a substantial stockpile in China, which could dampen demand for US soybeans as Chinese buyers work through their inventory.
Iron Ore Trade
In the iron ore trade, China’s imports in August fell by 1.38 percent compared to July and slipped 4.73 percent year-on-year, as weak steel prices and a pessimistic demand outlook curbed buyers’ appetite. The world’s largest iron ore consumer imported 101.39 million metric tonnes of iron ore in August, according to the General Administration of Customs. This is down from 102.81 million tonnes in July and 106.42 million tonnes in the same month last year.
For the first eight months of 2024, China’s iron ore imports totaled 814.95 million tonnes, marking a year-on-year rise of 5.2 percent. Additionally, China produced 617.225 million tonnes of crude iron over the first seven months of the year, representing a 6.7 percent year-on-year increase. However, in July alone, crude iron production dropped to 70.22 million metric tonnes, a significant 27.5 percent decrease from June’s production of 96.62 million tonnes. On an annual basis, July’s domestic iron ore output reversed a three-month bullish trend, falling by 18.1 percent.
This decline in domestic output, coupled with plummeting seaborne iron ore prices, led to an uptick in the substitution of domestic production with imports, supporting the spot market for Capesize vessels. Meanwhile, Brazil’s iron ore exports, which are crucial for Capesize trade, reached 253 million tonnes by the end of August 2024, reflecting a 6.2 percent year-on-year increase. This steady volume has kept a significant number of Capesizes active over the period. However, August showed some softening in activity, with exports totaling 34.3 million tonnes, an 8.11 percent decrease compared to the same month in 2023. The decline was even steeper when compared to July’s record levels, with August exports falling by 12.72 percent.
Mixed Performance
The dry bulk market has shown mixed performance in recent months due to shifting trends in key commodities. While China’s iron ore imports have generally been strong throughout the year, August saw a decline both month-on-month and year-on-year. Similarly, Brazilian soybean and corn exports have dropped significantly despite competitive pricing. China’s coal imports remain solid, bolstered by favorable seaborne prices compared to domestic sources.
However, concerns are growing about increased power generation from hydropower and renewable sources, which could dampen future coal demand. Overall, the market appears to be entering a more cautious phase. The impact of fluctuating commodity prices, rather than genuine changes in demand, is likely to influence freight rates and vessel utilization, especially for Capesize and Panamax vessels.
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Source: Breakwave Advisors
