The Russian invasion of Ukraine combined with already lower assumptions for China’s appetite for dry bulk commodities is expected to cut demand growth to 1% this year, according to Howe Robinson. Speaking on a Baltic Exchange commodities forum during Singapore Maritime Week, the ship brokerage’s head of dry cargo research Janina Lam said she has had to keep on reducing demand estimates as the conflict continues. A considerable drop in grains trades is to be expected from Ukraine, but volumes are expected to continue from Russia if it can get shipments out of the country, given that most product goes to what Russia considers “friendly” nations, she said. Both countries account for about 24% of total grains trades.

Less corn was expected to make it to China this year as its pig herd recovered from swine flu, while for wheat, Australian volumes were forecast to drop to 10 MMT this year, from 20 MMT last year. However, India is looking to increase exports to about 10-15 MMT of wheat. A loss of 20-30 MMT of coal is expected to be made up by an increase in tonne-miles as Europe sources the commodity from Australia, Colombia, South Africa, and the US, Ms. Lam said. However, China is planning to increase domestic coal production by 300 MMT, supplanting a chunk of imported volumes. In addition, China is “not desperate for iron ore” as stockpiles are high and it continues to move towards using scrap metal in electric arc furnaces, she said.

Rahul Kapoor, head of research at S&P Global Platts was also bearish on the market prospects given that the Russian war in Ukraine will lead the global economy to slow down this year after the rapid post-pandemic recovery seen in 2021. Price inflation is expected at 6.4% versus 3.9% last year, with global GDP growth pegged at 3.3%, lower than previously forecast.

Russia exports about 12%-15% of all dry bulk commodities and “not all volumes will be replaced,” he said. For example, coal supply availability with Europe sourcing backhaul cargoes, will not equate to the 30%-40% of lost volumes from Russia. Meanwhile, China is resuming long-term deceleration, with 5.1% GDP, he said, adding that the country’s stimulus will come in “bits and pieces” which means it will not have the same level of impact on dry bulk demand as in previous years. Although China’s iron ore imports could rise by 2% this year, from a contraction of 2.8% last year, marginal growth is expected from 2023, he said, adding that while overall coal trades should grow, imports into China will shrink. As short-term demand for coal rises, structurally it is on a downward trend, he said, adding that the seaborne market has reached its peak.

Looking at the supply side, Ms. Lam expects net fleet growth at 2.6% this year, or 24.4m dwt, while scrapping is unlikely given the strong freight rates. Removals are pegged at less than 5m dwt this year versus the 7m dwt scrapped in 2021, mostly the old converted very large ore carriers. While ordering has increased — at 30m dwt last year versus 20m dwt in 2020 — the orderbook as a percentage of the existing fleet is low, at less than 7%, she said. Fleet growth has been slowing over the past eight to nine years, and if considering all vessels over 20 years of age (amounting to 68.1m dwt) against the current orderbook at 64.4m dwt, it makes for “a positive story.” Inefficiencies and increased congestion, combined with a container market that is four times higher now than during the boom year of 2008, have benefitted handysizes the most, but these factors will not last forever, she said. The efficiency regulations coming into force next year is not expected to have a big impact on the market as vessels have already slowed down over the past several years, she added. In terms of newbuildings, Ms. Lam said yard capacity was an issue, while it was also difficult to know which technology to use. It was difficult for owners of smaller-sized ships to pay a premium for dual-fuel technology as asset values were lower than the larger sizes, she said. In addition, there were no incentives on offer at the moment. A 15-year-old vessel was more expensive than a newbuilding, while resales were the same price, with delivery now rather than in 2025. New regulations will however force older tonnage out of the market, according to the Baltic Exchange’s chief executive Mark Jackson. “There is need for a new fleet,” he said. “You cannot be frightened to say new ships need to be ordered.”