SIMIC

Marcus Hand | Sep 08, 2022

Hopes of a repeat of last year that saw the Baltic Dry Index (BDI) peak at over 5,500 points have been dashed and the market has come off sharply since this year’s high of 3,344 points in May to just 1,133 points on Wednesday.

In a report at the end of August Breakwave Advisors noted that Capesize spot rates are now “essentially zero” a far cry from the $100,000 day rates seen less than a year earlier.

Related: Analysts upbeat on dry bulk stocks despite ‘summer doldrums’

There are some improvements in the market expected in the coming months but overall averages are expected to considerably lower in 2023 and 2024. S&P Global forecasts that the BDI will fall on average 20 – 30% annually about 1,300–1,400 points in 2023 before recovering to average about 1,400–1,500 points in 2024.

“Although we expect some seasonal improvements in the dry bulk market in coming months, volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion. Eventually, overall dry bulk freight rates may return to the level we have seen in pre-pandemic period in coming months,” said Daejin Lee, Lead Shipping Analyst for S&P Global Intelligence.

Related: Mixed signals for dry bulk amid turbulent geopolitics

With lower trade volumes forecast S&P does not expect to see a return in port congestion which acted to limit vessel supply.

Breakwave noted a shift back to focusing on the fundamentals and away from disruptions of the last couple of years such as Covid crew detentions, port congestion and supply chain breakdowns.

“Following a period of high uncertainty and significant disruptions across the commodity spectrum, the gradual normalization of trade is shifting the market’s attention back to the traditional demand and supply dynamics that have shaped dry bulk profitability for decades,” the report from Breakwave said.

“As effective fleet supply growth for the next few years looks marginal, demand will be the main determinant of spot freight rates with China returning back to the driver’s seat as the dominant force of bulk imports.”

S&P also noted a lack of newbuilding orders that would help freight rates recover in the second half of 2023 and 2024.