During the Maritime CEO Forum held recently in Singapore the question was asked about a possible, or at least a plausible, new super-cycle looming in dry bulk. The moderator of the dry bulk market outlook panel noted that geopolitical risks tend to extend tonne-miles and with just 6.5% of fleet on order, and the fleet getting a lot older dry bulk was in a “honeymoon period” on the supply side.
Supply Driven Cycle
One of the panelists commented that there was a case for an upcoming supply-driven super-cycle based on the assumptions that war in Ukraine will continue, and China is opening up. But before we get any further, what is a super-cycle? According to the Bank of Canada a super-cycle is simply an “extended period during which prices are well above or below their long-run trend.” The bank describes the driving mechanism behind a super-cycle as “the interaction of large, unexpected demand shocks and slow-moving supply responses.” Four macro super-cycles in 120 years and one dry bulk super-cycle in 40 years.
The odds are clearly more in favor of a looming market spike rather than a super-cycle especially because China is facing the combination of a declining population together with post-covid reshoring policies enacted by numerous developed countries. As far as Ukraine is concerned and with no disrespect to its suffering population, with a pre-war GDP of $200bn or 0.2 % of world GDP it can hardly be seen as a potential driver behind a new super-cycle when the war is over and reconstruction starts.
Journey Towards Zero Emissions
The world has embarked on a journey toward zero carbon emissions by 2050. In that short period of time, the world needs to build an entirely new carbon-free energy infrastructure. This will require a massive amount of raw materials – coal, oil and gas – as it will take years before wind turbines, solar panels and batteries are manufactured in plants only using clean energy. In dollar terms, the International Energy Agency (IEA) is estimating that $4trn will have to be spent annually on building this new energy infrastructure. So is a super-cycle around the corner? Perhaps not, as the path on which the world has embarked to decarbonise itself using mainly solar and wind power without first decreasing its energy needs is flawed. At least until we can store electricity on a massive scale, to the tune of days worth of world energy consumption in fact, and that is not going to happen in the near future.
Until electricity storage technologies can be deployed, the world must keep its existing carbon-intensive electricity generation capacity in working condition and in fact increase it as global electricity consumption is massively going up due to the present policies promoting the use of electric vehicles. But worse if and when electricity storage capacity matches world energy needs the very low load factor of renewable energy production means will kick in. The load factor of a power generation unit is the ratio between the power actually produced over a period of time and its production if it was generating power continuously during that same period of time. Solar panels don’t produce energy at night and when it’s cloudy. Taking into account nights, clouds and the power production bell curve a solar panel is at best at 12.5% load factor, in fact less because the angle at which the sun hits it is always wrong.
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Source: Splash247
