The dry bulk market should perform better in 2023 as China signals the easing of a zero-Covid policy that has hampered imports of iron ore, coal and other dry commodities this year, market experts say.
The Communist government may relax its strict approach to the pandemic soon, as riots break out nationwide against a draconian policy that is harming the economy.
“As China opens up, we’ll probably see economic activity pick up and that means steel production likely to pick up again, coal demand coming back in,” C Transport Maritime senior analyst Lora Iakovidi said on Thursday during a dry bulk panel hosted by Breakwave Advisors.
The market may also benefit from the global energy crisis, extremely low orderbook and scrapping driven by environmental regulations.
“As we’ve seen, the energy crisis is probably going to continue, and we also see a limited amount of new ships coming and the orderbook is extremely low going into next year,” she said.
“These new regulations are going to mean more scrapping, so we’re fairly optimistic going into next year, even though there are some headwinds. But on the flip side, the supply is very, very limited, and this will be one of the biggest factors going into next year and making us bullish.”
Beijing realises that the zero-Covid policy will further weaken its economy, while the US and Europe have fully opened their economies after learning to live alongside the coronavirus, said Jeffrey Landsberg, president of Commodore Research & Consultancy.
“It’s kind of been a boiling point and so I think finally the government has no choice but to significantly ease,” he said.
“The Chinese economy is doing so poorly that the government really at this point has no choice but to significantly ease, and … I think the government has been signalling that.”
The country is also hurting economically from inflation that has exceeded retail sales for two months because its consumers are not buying more goods, Landsberg said.
“To me, that’s been at the foundation of the protests in China during the last few weeks,” he said.
Landsberg is optimistic that easing the strict Covid-19 clampdown will boost China’s economy, which will in turn create greater demand for dry bulk shipping.
“I actually do think that we’re going to see an acceleration of easing more than the market expects and I think for the dry bulk market that’s really going to help,” he said.
“I think the Chinese economy is going to surprise on the upside next year, so … that will finally be more of an engine of growth and drive all markets.”
But China might not start easing the policy right away, and the government may reinforce it if Covid breakouts get too severe, according to Wilson Wirawan, maritime analyst and dry bulk team lead at shipbroker BRS Group.
“As a realist, until the winter in China is over, we believe that the relaxation over Covid measures is likely to be selective and inconsistent,” he said.
Trade-pattern disruption caused by the Russia-Ukraine conflict may benefit the dry bulk market next year, however, by increasing shipping distances, he added.
