The Dry Bulk Weekly Review in Shipfix Data
Last week, Shipfix’s cargo order data highlighted that cargo order volumes for sugar loading globally continued to stabilise after recovering from a sharp decline in June. The development will contribute to an improving global supply situation and pressure on sugar prices in the coming months. Elsewhere, the forward-looking nature of the cargo order data set suggested that Chinese steel exports may enjoy a brief recovery in the near term. At the same time, weaker demand for seaborne transportation onboard Panamaxes may keep freight rates under pressure.
A Recovery in Cargo Orders for Sugar to Weigh on Prices?
Throughout the first three weeks of the month, sugar prices recovered much of the losses sustained during the second half of June. The October #11 sugar futures listed on the ICE gained more than thirteen per cent between the end of June and the end of the third week of July. However, the contracts have reversed course during the past week and are trading around three per cent below last week’s high. As the coming Brazilian harvest looks to be sizeable, an improving global supply situation has contributed to the week’s bearish sentiments. Still, adverse growing conditions in other regions are likely to provide continued support for elevated prices.
The strong performance for sugar during the previous three weeks was preceded by a significant drop in weekly cargo order volumes for sugar loading globally. Demand for shipments from Brazil was especially badly affected, with weekly volumes dropping to around 900,000 tonnes. Given the leading nature of the cargo order data, the development supported sugar prices into the new month. However, volumes have recovered during July, and weekly demand for future shipments from Brazil has moved above 1.5 million tonnes. The increasing demand for seaborne transportation of sugar from Brazil has contributed to the recent bearish pressure on prices. Also, should the development prove sustainable, it could provide support for freight rates in the smaller segments.
The rebound in demand for sugar shipments from Brazil has seen a recovery for the average cargo size of the trade after a brief dip during the second half of June. The typical cargo of sugar due to leave Brazil in the near future has returned to around 40,000 tonnes after declining towards 30,000 tonnes last month. In contrast, despite a minor correction last week, sugar cargoes shipped from non-Brazilian ports have shrunk in recent weeks, with the average falling to nearly 20,000 tonnes.
Chinese Steel Exports Look Set for a Brief Recovery
According to data released by the China Iron and Steel Association earlier in the month, Chinese steel exports rose by nearly a third during the first half of the year compared to the same period last year. However, the data also highlighted that export volumes declined on a month-on-month basis in June, the first such drop for the year. The increase in Chinese steel exports has been fuelled by low domestic demand as the country’s economic recovery faltered.
Still, Chinese steel exports may see a rebound in the coming months. Shipfix’s cargo order data for steel loading in Chinese ports saw a recovery in May and June, and, given the data set’s forward-looking properties, volumes shipped could see an increase in the coming month. However, the rebound is likely to be short-lived, as the current month is showing some weakness. With most of July behind us, volumes may be on course for a month-on-month decline of around fifteen per cent.
The average cargo size for steel loading in China has remained stable over the past few months. After a minor increase in March to around 31,000 tonnes, the typical steel cargo has stabilised at approximately 28,000 tonnes.
Renewed Pressure on Demand for Panamaxes Weighing on Freight Rates
Despite a minor recovery during the first half of the month, the Baltic Exchange’s freight rate index for the Panamaxes ended the first half of July nearly 50 per cent below the high for the year that was set in the middle of April. A rise in ordering activities fuelled the temporary recovery, but the development proved short-lived, and declining order volumes have since weighed on freight rates.
Compared to the peak in April, aggregate global cargo order volumes the week before last were 27 per cent lower and retreating towards fifteen million tonnes. While the decline has been broad-based, the demand for seaborne transportation to China onboard Panamaxes has been especially badly hit. Despite a minor rebound, cargo orders for discharge in China have fallen by 35 per cent since the middle of April. In contrast, volumes destined for non-Chinese ports have fallen by around 22 per cent during the same period. In addition to weaker demand, increasing tonnage supply in the past few weeks has also contributed to the continued weakness in freight rates.
However, it has been reported today that the Chinese Politburo is calling for counter-cyclical measures to support domestic growth as the economic recovery continues to lose momentum. In addition, the country’s top leadership has signalled that it will provide additional support for China’s beleaguered property sector. Hence, should the support measures materialise and be significant enough, the depressed order volumes for Panamaxes bound for China could recover and support freight rates.
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