The Dry Bulk Weekly Review in Shipfix Data
Downward pressure on cargo order volumes has weighed on dry bulk freight rates since the beginning of the year. At the same time, tonnage supply has been a key factor for freight rate movements. The current supply situation should lend support to a seasonal recovery in the coming weeks.
Tonnage Supply Key to Capesize Freight Rates
Following a solid start to the year, the fortunes for the capesizes have shifted over the past month. Despite gaining considerable ground over the past few sessions, the Baltic Exchange’s freight index for the capesizes remains nearly 40 per cent below the levels seen during the first week of January. However, notwithstanding the recent headwinds, the gauge for the largest vessels is around 160 per cent above the level seen a year ago.
Downward pressure on demand in the Atlantic has been a significant contributor to the decline in the freight rate indicator. Last week, aggregate order volumes in the basin were 30 per cent below the reading recorded during the year's first week. The demand in the other major basins has also shown some relative weakness from time to time during the period. Still, demand levels in the Pacific and Indian Ocean have been considerably higher than a year ago, contributing to the capesize index remaining at elevated levels.
At the same time as the weekly cargo order volumes in the Atlantic basin have been trending lower, the available vessels have been recovering from the lows in late December, providing additional pressure on freight rates. The number of available vessels in the Pacific has seen considerable volatility during the past month, while the Indian Ocean has seen supply stabilising around the long-term average in recent weeks.
The past week came off to a relatively strong start for ordering activities, especially in the Atlantic. After two sessions, aggregate demand in the Atlantic was nearly at par with the previous week’s total. On the other hand, demand in the Indian and Pacific Oceans showed continued signs of weakness.
On the supply side, early on, developments in the Atlantic basin pointed towards a weekly decline in available vessels. In contrast, the supply continued to increase in the Pacific during the past five sessions. The drop in supply in the Atlantic and a marginal increase in demand contributed to the Baltic’s capsize index rising by more than seventeen per cent last week. While the improving situation in the Atlantic basin is favourable for freight rates, the soft demand in the other basins will likely provide an offset, especially as the Chinese New Year celebrations will curtail activities. However, the current circumstances should prove beneficial for a rebound, once the Chinese holidays are behind us.
Weak Demand in the Indian Ocean and the Pacific Has Weighed on the Panamaxes
After what appeared to be a solid start to the new year, demand for seaborne transportation onboard panamaxes has been trending lower since the early parts of January. As a result, the Baltic Exchange’s spot index for the segment has declined by nearly 23 per cent since the beginning of the year.
Demand in the Atlantic basin has, after a brief dip, remained reasonably robust, with cargo order volumes last week around eight per cent below the weekly average for November. On the other hand, ordering activities in the Indian and Pacific Oceans have failed to stage a recovery. In the former basin, demand has dropped by nearly forty per cent since November, while the latter basin has seen a decline of almost 50 per cent. While it can be argued that seasonal factors are weighing on the ordering activities, volumes in the Indian and Pacific Oceans are also well below what was seen during the weeks prior to the Chinese New Year a year ago. However, aggregate demand in the Atlantic basin has been broadly in line with the average for the weeks before the previous Lunar New Year.
Despite the downward pressure on cargo order volumes, the Baltic Exchange’s panamax freight index has seen some limited gains during the past few sessions. A weaker tonnage supply in the Atlantic and Pacific basins has offset the continued soft demand in the segment. The development began last week and has extended into the current week.
While the weaker tonnage supply situation has provided some limited support for panamax freight rates recently, any real turnaround is likely to happen after the end of the Lunar New Year holidays. Hence, markets will have to be patient for another week. During the second half of February, cargo order volumes in the Pacific and Indian Ocean can be expected to see a substantial recovery and push freight rates higher. In the Atlantic, seasonal patterns suggest that any rebound in demand will be modest. Still, the key to the strength of the recovery is how the tonnage supply develops in the coming weeks.
Soft Demand in the Atlantic Has Contributed to the Decline in Supramax Freight Rates
While the Baltic Exchange’s index for the supramaxes has outperformed the broader BDI since the beginning of the year, the gauge has nevertheless slumped by 23 per cent from last year’s final reading. After significant weekly losses during the early stages of the year, the midsized segment has seen its spot freight indicator oscillating between limited gains and losses in recent weeks.
After a solid start to the year, the past four weeks have seen aggregate global cargo order volumes for the supramaxes under pressure. The past week saw total volumes dropping below 40 million tonnes amid weak demand across all of the major basins. However, the decline in the Atlantic has been modest compared to developments in the Pacific and Indian Oceans. The extended period between Christmas and the Chinese New Year is likely to have contributed to the current weakness,
At the same time, as cargo order volumes have been declining, the number of available vessels in the segment has been trending lower since the beginning of the year. The latter development has contributed to the supramaxes outperforming the headline dry bulk index. The supply in the Pacific and Atlantic basins has dropped well below the weekly averages for the past year.
Demand can be expected to recover in the coming weeks as the Chinese economy reopens following the Lunar New Year holidays. Coupled with low supply in two of the major basins, increasing cargo ordering activities should support freight rates for the supramaxes. However, the headwinds currently affecting the Chinese economy could dampen the rebound compared to recent years.
The Recent Decline in Supply Points Towards a Rebound for the Handysizes
Apart from one week, when the Baltic Exchange’s handysize index rose by a third of a per cent, the segment has only recorded weeks in the red so far this year. The depressing statistics have translated into the smallest vessels being the weakest performers year-to-date, with their gauge 35 per cent below the level at the end of last year. Still, compared to a year ago, the index remains around 30 per cent higher.
Like the larger dry bulk segments, the handysizes have seen downward pressure on demand since a spike in early January. Last week, global aggregate cargo order volumes retreated below 30 million tonnes. While ordering activities in the Atlantic basin remained weak, the main reason for last week’s drop was lower demand in the Indian Ocean and the Pacific. The two basins saw cargo order volumes decline by around a quarter week-on-week as activities wound down ahead of the Lunar New Year.
The number of available vessels has declined over the past few weeks. In the Pacific and Indian Oceans, last week saw supply drop well below the weekly averages of the past year. On the other hand, in the Atlantic basin, the decline was more a case of a reversal to the long-term mean. Hence, a pick-up in demand following the end of the holidays in China and the Far East should contribute to higher freight rates.
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