Dry bulk shipping freight rates are forecast to be loss-making in 2020 amid the Covid-19 pandemic, despite making some gains last week on China's steady resumption of industrial activity.
The weighted time-charter equivalent (TCE) average spot rate for capesizes improved 73% last week to $4,140 per day, according to Baltic Exchange assessments.
TCE rates for kamsarmaxes and supramaxes rose 5.4% to $5,718 per day and 8% to $5,350 per day, respectively.
Rates lifted as China aired a $500bn economic stimulus package, but virus-related disruptions to Brazil's iron-ore output still weigh them down.
At the same time, the world's bulker fleet is expected to grow by 3% to 927m dwt in tonnage amid lower shipping demand from virus-stricken Brazil, Bimco analyst Peter Sand said.
"Given the overcapacity — which was already plaguing the market after years of supply growth outstripping demand — Bimco already expected average freight rates to be in loss-making territory in 2020," he wrote in a note distributed on Monday.
"This will only be exacerbated by the negative demand shock from Covid-19.
"The outlook may yet deteriorate further if lockdown measures last longer than expected, or have to be reinstated to avoid a new wave of infections, but there is little prospect of an improvement.
"Even with large government investments in infrastructure, the global recession will doubtless lead to lower demand and low freight rates."
Ups and downs
The Baltic Exchange Dry Index gained 8 points on Tuesday to hit 596, up from 393 points on 14 May, but the benchmark Capesize Index slid 15 points to 147. TCE rate for capesizes declined $20 to $4,120 per day.
The TCE rate for capesizes along the Brazil-China route improved $41 to $4,091 per day, but the massive haulers saw tonne-mile per day fall on Tuesday to $4.514 from $4.782 on Friday.
Lower demand for coal amid a slower economy may further hurt dry bulk shipping rates for 2020, Sand said.
"Bimco expects trading in all commodities to fall, including grains, although this could yet turn out to be the joker for the year," he wrote.
"Lower commodity demand comes as a direct result of the lockdowns, as well as from the ensuing economic slowdown."
The International Energy Agency expects coal demand will fall 8% this year due to lower electricity use during lockdowns and reduced manufacturing activity.
Slow recovery in China
China's economy is recovering slowly but is still hurting from a 6.8% first-quarter year-over-year contraction caused the national lockdowns, Jefferies analyst Randy Giveans said.
"We believe the dry bulk shipping market will remain soft during the first half of 2020 before rebounding due to economic recovery in China, increasing Brazilian exports and very low fleet growth," he wrote in a client note.
Last week, the Chinese government announced it would not set an annual GDP growth target in 2020 for the first time ever.
Forward freight agreements for capesizes in June are certainly indicating tough times ahead for dry bulk shipping, falling $400 to $6,950 per day, according to the exchange.
"Even though Brazilian iron ore exports rose significantly last week, there still seems to be significant problems in the logistical chain," Clarksons Platou Securities managing director of research Frode Morkedal said.
"With the ongoing coronavirus outbreak in the region, it will probably take some time before normal activity resumes and export volumes recover to similar levels as seen in previous years," he wrote Monday in a note.
