With capes closing in on the $50,000 per day mark, something not seen since June 2010, an important driver in today’s hot dry bulk market is not demand, but congestion, reports Splash247.
While Splash has reported repeatedly about the effects of port congestion on container shipping, similar issues are coming to light in the dry bulk space.
Port congestion troubling dry bulk ships
More dry bulk ships are tied up by port congestion than ever before, according to new research from brokers Braemar ACM.
Bulk carrier queues around the world hit a peak of almost 142m dwt over the weekend with China accounting for more than a third of this congestion. Bulker capacity queuing in China hit an all time high of 52.7m dwt on the weekend, representing 6% of the global trading fleet.
This figure also represents a spike of 28% month-on-month and 23% versus this time last year. The sudden spike in Chinese congestion comes as Beijing cracks down on the threat posed by the delta variant of Covid-19, with many more precautionary measures recently put in place for ships entering Chinese waters.
The China congestion issue is affecting all ship sizes, from capes to handies. Ships carrying grain have also suffered as China’s grain silos are extremely full this month.
Turmoil in commodity prices
Capes are now trading above $47,000 a day, while handies are at 2008 levels, and the Baltic’s 58k supramax index has surpassed $35,000 per day for the first time since it began printing in 2015.
“Looking forward, it seems unlikely that the COVID-related stresses on China’s port activity will ease overnight, and with little room for grain capacity expansion, the pile-up of agricultural cargoes is also unlikely to quickly diminish,” Braemar ACM predicted in a note to clients, adding: “On the bigger ships, the recent uptick in iron ore shipments in both basins could also trigger an increase in the volume of Cape arrivals in China over the next few weeks, sustaining queues further. With these factors in mind, we believe there is still further upside to today’s incredibly strong market, despite this week’s turmoil in commodity prices.”
Iron ore prices have fallen by around $100 in recent days, however shipping experts argue that this has no bearing of where the freight markets are headed.
In a post on LinkedIn, Dr Roar Adland, shipping chair professor at Norwegian School of Economics, argued: “The absolute level of commodity prices actually has no long-term bearing on freight rates. In shipping we care only about volumes exported. If prices were high in May because demand was high and supply constrained, then this need not be better for the freight market than the case where supply increases and iron ore prices fall.”
Ports running at critically low levels
Analysts at Lorentzen & Stemoco also discussed this issue in a note. “Chinese steel mills may need to restock their inventories, as stocks in port are running at critically low levels,” Lorentzen & Stemoco suggested.
Chinese authorities are forecasting the country’s iron ore requirements this year at some 1.4bn tons. By contrast, the latest assessment by the Mysteel consultancy is that there are 127m tons lying in the 45 biggest ports, which roughly covers only a month of forward consumption.
Furthermore, Lorentzen & Stemoco pointed out overseas mining companies in Brazil and Australia could be concerned about the steep decline in the futures prices and accordingly are eager to ship out as much as possible at still-high prices.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Splash247
