China’s massive investment in infrastructure has improved the 2017 forecast for dry bulk imports, even though surplus shipping supply will drag freight rates to loss-making levels in the traditionally slow first quarter, according to BIMCO’s latest market outlook.

The shipping association said planned investment into physical infrastructure and transport connectivity as part of China’s five-year plan – most noticeably directed at the One Belt, One Road initiative – would support the dry bulk shipping business. During 2017, USD259 billion is earmarked for highway and waterway projects in China, and USD503 billion on expanding the country’s railway system. “As in past years, China’s investments in housing and connectivity is critical for the dry bulk shipping sector as the rest of the world isn’t growing its dry bulk imports,” BIMCO said in its market outlook.

The first quarter is generally soft and significantly affected by seasonality, historically having an overall lower level of demand than any fourth quarter, BIMCO noted. The shipping association said 2016/17 would be no different with demand contracting by as much as 5.4% from Q4-2016 to Q1-2017. But seasonality does not only have a negative impact, and demand for certain commodities being transported by ocean would increase. The positive effect will see coarse grain exports out of Argentina, soya exports out of Brazil and wheat out of Australia being generally higher in Q1-2017 compared to the last quarter of 2016.

China’s coal imports could provide another demand avenue. Usually by 15 March, the Chinese winter heating period is at an end and during this period, coal mines benefit from an extension to the official national limit on the number of working days they can operate – from 276 to 330 days. This is to allow them to increase domestic production and thereby “control” the coal price during peak demand seasons. BIMCO said the end of this extension during March may benefit dry bulk shipping if domestic demand for coal exceeds domestic supply while coal prices do not increase significantly as they did in the run up from April 2016 to the start of the winter heating period late in the year.

Another noticeable seasonality BIMCO pointed out was the fact that January and the first quarter always showed a disproportionate amount of newbuildings that were delivered. During 2013-2016, January deliveries accounted for 17% of the year’s total additional dwt capacity and Q1 deliveries were 35% of the year’s total. Based on those figures, 2017 would see 5.3 million dwt delivered in January and 10.9 million dwt delivered by April. However, the world’s largest global shipping association said that a continued slowdown in demolition interest was “alarming” and would merely postpone the industry recovery. More orders could also be placed in 2017 as prices for new vessels have flattened out since mid-August 2016, and BIMCO said owners and investors might be tempted by the low prices to go back to the yards for new ships.

With the depressed market, the lack of activity from the newbuilding yards has meant the second-hand market has been red hot. According to VesselsValue, 648 dry bulk “trading sales” were made in 2016. The panamax segment was the busiest with 154 ships traded, equal to 7% of all panamax dry bulk ships. Average price and age of the traded ships was USD8.4 million and 10.2 years.

On the demand side, BIMCO said iron ore provideed 30% of the demand for the dry bulk market and during 2016, its related tonne mile demand went up by 6%. This was the key factor behind the overall demand side growth of 2.2% for the year. In China alone, from January to December 2016, iron ore imports went up by 7.5%, and for the first time, imports by sea and land exceeded 1 billion tonnes in a calendar year.

Looking further out than the first quarter, the early consensus among New York-based shipping analysts and industry executives who spoke to Fairplay was that dry bulk rates would improve modestly this year and could be poised for more substantial gains in 2018. The caveat is that optimistic market chatter is a notoriously poor bellwether of rebounding bulker rates. Most notably, there was a surge in optimism on dry bulk in 2013 that spurred major new investments by private equity and public companies and a wave of secondhand acquisitions and newbuilding orders. The predicted rate rebound in 2014–15 never materialised, with disastrous financial consequences for early movers.