Executive Briefings

Gains Seen in Dry Bulk Shipping May Fade in Second Half of 2016

Shipping rates for vessels transporting commodities such as coal, iron ore and grains racked up impressive gains in the first quarter of 2016 after hitting record lows, but the rally could flatten out into the second half as the macroeconomic outlook remains uncertain, according to IHS Inc.

Freight rates for large Capesize vessels carrying iron ore along Australia-Far East routes reached $2.99 per tonne in Q1, 2016 and is expected to hover at $3.30 per tonne for the rest of Q2, 2016 after an increase of over 11 percent quarter-on-quarter, while average rates for the trans-Atlantic Brazil-Far East routes reached $5.8 per tonne in Q1, 2016 and will continue its current upward trend averaging at $8.5 in Q2, 2016 as higher earnings are expected in April and going into May and June.

Panamax vessels along the Australia-India route for coal deliveries, where average spot rates hit $6,100 per day in Q1, 2016, is expected to rise to a forecasted $8,000 in Q2 2016, an approximate 30 percent increase. In contrast, however, Panamax routes loading coal from Indonesia will see a 5 percent decrease in Q2, 2016 as compared to the first quarter, counterbalancing the overall average earnings for an increase of 15 percent or $6,900 per day in Q2, 2016.

“Short-lived rebounds will bring occasional relief to the market,” said Luciana Salles, principal trade analyst at IHS Maritime & Trade. “Many questions remain, however, as to when the current situation in the dry bulk markets will give rise to more sustainable rates on the whole, and whether the overall macroeconomic situation and the fundamental drivers can engender enough confidence to see a price recovery for a more prolonged period of time.”

After being subdued since 2014, the dry bulk market will face a transitional year in 2017, IHS predicts, as demand will finally outpace supply on the back of calmer financial markets that could reinforce a more stable outlook for global growth. At present, U.S. economic growth is expected to accelerate a little moving through 2016, led by consumer spending and home building, while growth in the Eurozone growth will improve slightly aided by further monetary stimulus.

For 2016, IHS estimates world GDP growth to reach 2.6 percent with real export growth of 2.8 percent. Then in 2017, IHS forecasts 3.1 percent for world GDP growth with 4.4 percent export growth followed by 2018 with 3.2 percent growth and 4.3 percent in exports.

“Freight rates could start to feel the effects of a more balance market from 2018 onwards if the growth outlook for the world economy is sustained,” Salles said. “Meanwhile, we can expect episodic volatility – much like the one we are in now – as supply and demand variables get worked out by the natural order of the markets.”

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Freight rates for large Capesize vessels carrying iron ore along Australia-Far East routes reached $2.99 per tonne in Q1, 2016 and is expected to hover at $3.30 per tonne for the rest of Q2, 2016 after an increase of over 11 percent quarter-on-quarter, while average rates for the trans-Atlantic Brazil-Far East routes reached $5.8 per tonne in Q1, 2016 and will continue its current upward trend averaging at $8.5 in Q2, 2016 as higher earnings are expected in April and going into May and June.

Panamax vessels along the Australia-India route for coal deliveries, where average spot rates hit $6,100 per day in Q1, 2016, is expected to rise to a forecasted $8,000 in Q2 2016, an approximate 30 percent increase. In contrast, however, Panamax routes loading coal from Indonesia will see a 5 percent decrease in Q2, 2016 as compared to the first quarter, counterbalancing the overall average earnings for an increase of 15 percent or $6,900 per day in Q2, 2016.

“Short-lived rebounds will bring occasional relief to the market,” said Luciana Salles, principal trade analyst at IHS Maritime & Trade. “Many questions remain, however, as to when the current situation in the dry bulk markets will give rise to more sustainable rates on the whole, and whether the overall macroeconomic situation and the fundamental drivers can engender enough confidence to see a price recovery for a more prolonged period of time.”

After being subdued since 2014, the dry bulk market will face a transitional year in 2017, IHS predicts, as demand will finally outpace supply on the back of calmer financial markets that could reinforce a more stable outlook for global growth. At present, U.S. economic growth is expected to accelerate a little moving through 2016, led by consumer spending and home building, while growth in the Eurozone growth will improve slightly aided by further monetary stimulus.

For 2016, IHS estimates world GDP growth to reach 2.6 percent with real export growth of 2.8 percent. Then in 2017, IHS forecasts 3.1 percent for world GDP growth with 4.4 percent export growth followed by 2018 with 3.2 percent growth and 4.3 percent in exports.

“Freight rates could start to feel the effects of a more balance market from 2018 onwards if the growth outlook for the world economy is sustained,” Salles said. “Meanwhile, we can expect episodic volatility – much like the one we are in now – as supply and demand variables get worked out by the natural order of the markets.”

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