The dry bulk market experienced a very strong comeback around the middle of the year.

After very strong downward corrections from the fantastic rate levels seen earlier this year, a substantial recovery took place from late June through mid-July, when the Baltic Dry Index increased by 56% in just three weeks. Thereafter, dry bulk rate variations have been rather moderate at very solid levels. At September 20, the Baltic Dry Index was 4% higher than in mid-July and 72% higher than one year before. Compared with one year before, the Capesize index was up 60%, the Panamax index up 77%, and the Handymax index up 89%.
The steel industry, which in total accounts for about 50% of total dry bulk tonnage demand, continues to surprise positively. In August, world crude steel production was 9.4% higher than in the same month last year, and the year-to-date production was up 8.5%. World production of pig iron, which requires iron ore and coking coal, was 8.4% higher than one year before and up 7.7% on the first eight months of the year. These high growth figures are strongly influenced by developments in China. In China, the pig iron production in August was 21.8% higher than one year before and up 20.5% year-to-date. Pig iron production in the rest of the world over the first eight months of the year was up a modest 2.2% (EU-25 up 4.1%, FSU +2.3%, USA +1.8%, Japan +1.4%, and S.Korea +0.7%). Recently, China’s steel product imports have decreased significantly.
The announced cooling down in China is at present not very visible in the major seaborne trades. Iron ore imports were up 37% over the first seven months of the year and increased from a low of about 13 million tonnes in May to 18 million tonnes in July. Higher domestic demand for coal has resulted in just a marginal increase in coal exports over the first seven months of less than 1 million tonnes to about 52 million tonnes, whereas China’s coal imports over the same period rose by 55% to 9.5 million tonnes.
The stagnation in China’s coal exports gives room for more exports to other Asian countries from more distant sources with significant upward leverage on coal tonne-miles.
Against all odds, coal has definitely been the star performer among the main energy commodities in the last few years. Despite pollution concerns and the Kyoto Protocol on carbon dioxide emissions, the growth in global use of coal is now out-pacing oil and gas. Last year world coal demand increased by almost 7%, whereas both oil and gas demand were up about 2%. In addition to the phenomenal growth in China’s steel industry with higher iron ore import volumes, the coal trade is the main contributor to the strong dry bulk market.Transient factors, such as congestion in coal ports and another round of shut-downs of nuclear power plants in Japan have recently tied up more tonnage in seaborne coal trade. Problems in the Middle East and high oil prices clearly stimulate the demand for coal, although coal prices have increased by about as much as the price of oil. Coal is abundant and, in some places, comparatively cheap to produce. The USA reportedly has five times more energy resources in the form of coal than Saudi Arabia has in the form of oil. Many other countries also have vast coal reserves waiting to be tapped.
The grain trade shows fairly modest volume growth and a bumper crop is expected on a global basis. However, unusually low Chinese stocks are expected to induce high import growth this year.
Orders for new bulk carriers slowed down strongly after mid-year. The volume increased from 59 vessels of about 4.6 million dwt in 1Q to 64 vessels of 5.2 mdwt in 2Q, whereas July/August showed 27 vessels of only 1.9 mdwt, with only about 0.25 mdwt in August. As could be expected in view of the strong freight market, sales of bulk carriers for demolition remained insignificant. After ten vessels of about 0.3 mdwt were sold to breakers in 1Q, just four vessels of less than 0.1 mdwt were reported in 2Q, thereafter only one Handysize vessel in July and none in August.
At the end of August, the world fleet of bulk carriers over 10,000 dwt stood at 5,752 vessels of 313.8 million dwt, up 4.1% from one year before measured in dwt. The order book amounted to 637 vessels of 48.4 mdwt, corresponding to 15.4% of the existing fleet. After deliveries of 12.3 mdwt during the first eight months of the year, scheduled deliveries for the remainder of the year stood at 6.1 mdwt, followed by 19.6 mdwt in 2005, 15.2 mdwt in 2006, and, so far, 5.7 mdwt in 2007.

Jarle Hammer, 21.09.2004

Date: 12 February 2008