- Short-Haul Routes Experience Significant Post-Holiday Freight Rate Gains.
- China-Focused Routes Outperform Broader Market Indicators.
- Baltic Dry Index Shows Moderate Movements Compared to China-Linked Routes.
In the last few years, the increased dominance of Chinese players in both the shipping sector and its downstream markets has multiplied the importance of the Chinese New Year holiday. Just like Christmas, shipping traffic gradually slows down leading up to the holiday. However, in contrast to Christmas, the Baltic Exchange still publishes indices during the Chinese New Year holidays, and shipping traffic generally recovers after the holiday, reports Break Wave Advisors.
Post-Holiday Rebound Patterns in Freight Prices
Historical Baltic Exchange figures (2018-2024) show that short-haul routes typically see an increase in freight rates following the holiday. China-oriented routes like the Panamax Indonesia-South China coal trip (P5_82) and the Supramax Indonesia-South China coal trip (S10_58) have posted large post-holiday increases.
For instance, during 2021, the S10_58 index jumped 41.4% after 7 days and 98.0% after 14 days, whereas P5_82 jumped by 62.7% and 55.9%, respectively. By contrast, long-distance Capesize trades like C10 (the Australia-China iron ore voyage of the Capesize) do not have a visible bounce back.
Contrasting the Baltic Dry Index with China-Specific Routes
The Baltic Dry Index (BDI), which captures the overall market, experiences relatively more moderate swings than China-dedicated routes. In 2023, the BDI fell by 11.4% after 7 days and 18.6% after 14 days. This identifies the greater effect of Chinese demand on dedicated routes as opposed to the overall shipping market.
Current Year Freight Rate Trends
The P5_82 index increased by 55.7% a week after the Chinese New Year this year, fueled by a low Panamax freight rate base. Yet, the present rate of $5,689/day is only barely breaking even at operating costs of $5,231/day.
Downstream Demand: Recovery in the Coal Sector
Coal demand will bounce back after the holiday. Industrial power demand was sluggish during the holiday season, resulting in a fall in power plants’ daily consumption of coal. With industries picking up pace and weather remaining cold, both industrial and domestic electricity demand are expected to pick up, spurring seaborne buying activity and replenishing.
Iron Ore Demand Outlook
While steel mill margins recovered in January, pre-holiday market conditions were still weak. The customary post-holiday off-season for demand, combined with factories restarting production in mid-February, could restrict steel demand. While short-term support from restocking by steel mills is anticipated, low-grade iron ore cargoes could continue to be popular, and high-grade demand could remain under pressure until demand recovers fully.
Short-Term Market Outlook
The post-holiday shipping market will move into a gradual recovery. Downstream demand recovery is unlikely to provide a strong impetus through a slow and steady recovery. Domestic essential procurement should still keep seaborne demand rising and support improving depressed freight levels.
With temperatures warming and building work resuming, it will be easier to assess the impact of government stimulus measures on construction, property, and the broader Chinese economy, giving more direction to the path of the shipping market.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: Break Wave Advisors
