Things are looking good for larger bulk carriers this year but to a lesser extent for smaller vessels, which could lead to interesting dynamics in dry cargo this year, according to research.
In its outlook for 2024, global shipbroking group SSY posed this question: will stronger rates and market sentiment for the larger sizes pull up the smaller sizes or be capped by them?
“While we lean towards the latter from a fundamental point of view, the market action of last November and December should show positive capesize sentiment can quickly cascade down into the smaller sizes, lifting rates across the board,” global head of research Roar Adland wrote in the document.
He pointed to how late last year the rerouting of vessels to avoid the heavily congested Panama Canal supported sentiment and rates in the second half of 2023, as the disruption coincided with general tightness of tonnage in the Atlantic market.
Overall tonne-mile demand growth this year will be moderately good at 2.7%, just outpacing the 2.6% expected growth in fleet supply — but fundamentals for some bulker segments look stronger than for others.
“In particular, capesizes look substantially stronger on paper, with a projected 2024 tonne-mile growth of 3.3% vs a mere 1.3% forecasted fleet growth,” the report said.
Panamaxes are not far behind with 4.2% tonne-mile demand growth forecasted against 2.7% fleet growth. But progress could be hampered by the risk that South American grain exports will not meet current high expectations, SSY said.
Vessel supply shows the biggest differential to demand for geared vessels. The fleet will increase by 4.1% this year, while tonne-miles will only grow 1%.
Disruption and demand
SSY said its projections for this year are conditional on there being no new major geopolitical shocks, “which is, unfortunately, not necessarily the obvious outcome at this time”.
The most obvious wild card right now is the ongoing disruption in the Red Sea caused by military action against merchant vessels by Houthi rebels, the report said.
Only around 7% of global dry bulk trade usually transits the waterway, but Adland said a prolonged period of rerouting vessel traffic around the Cape of Good Hope cannot be ruled out. This would tighten the market by increasing voyage times and absorbing vessel supply to the market.
There is also a generally positive story for bulker demand this year.
“We are actually more constructive on the Chinese steel complex going into 2024 — contrary to most macroeconomists,” Adland wrote.
“Firstly, the property correction in China has now been ongoing for nearly four years, which means that the sector is smaller relative to the other sectors driving steel demand (from approx. 40% share of domestic steel demand in 2020 to an estimated 33% in 2023).”
Steel-intensive industries like auto manufacturing, shipbuilding, infrastructure and other manufacturing showed strong growth last year and will continue to be supported by Chinese policymakers in 2024, he added.
But whether or not a stable Chinese steel industry translates to higher imports of seaborne iron ore and coking coal will depend on the expansion of mining capacity by key exporters, Adland said.
Last year saw rapid growth in export capacity for Brazilian iron ore and bauxite from Guinea, but SSY does not think the momentum will be sustained in 2024. Brazilian miner Vale has already said it expects zero growth this year.
The massive growth seen in Chinese demand for thermal coal last year will not be repeated this year and SSY expects imports will probably decline.
The good news is that India and countries in Southeast Asia will pick up the shortfall in demand from China, which should leave global coal trade stable at record-high levels, the report said.
