China holds the key to dry bulk shipping’s fortunes, according to the head of Thai owner Precious Shipping. Although China’s Purchasing Managers Index was at 49.5 during the third quarter, indicating a slowing economy due to its zero-Covid policy, GDP grew by 3.9%, said Khalid Hashim. “China with its interest rate cuts and stimulus will grow its GDP at less than its targeted rate, but grow it will, and dry bulk owners will cheer,” the chief executive said in a newsletter, adding China will be “the wild card for dry bulk” once it gets the current coronavirus outbreak under control.

China spent $586bn in 2009 on steel-intensive infrastructure, which boosted the Baltic Dry Index to a high of 4,221 points from a low of 665 points at the end of 2008.

Fast-forward to 2020, and China allocated $667bn to assist with Covid-19 hits to its economy. That pushed the BDI to 5,650 points, a 13-year high, in October 2021.

“The real question therefore should be, what happens when China’s massive $2.3trn stimulus, a third devoted to steel intensive infrastructure development, comes into play, in such a finely supply-demand balanced dry bulk freight market, in 2023?” said Mr Hashim.

Despite four revisions downwards by the International Monetary Fund for world growth, GDP is still at “a reasonable” 3.2% for 2022 and 2.7% for 2023, he said.

Dry bulk demand has decoupled from world GDP growth rates and is now more dependent on government stimulus or lack of it, impact from weather patterns such as La Niña, climate change, geopolitics, inefficiency, lockdowns, and congestion.

Meanwhile, vessel supply has been shrinking, with growth at 3.6% last year, which was able to absorb the marginal increases in tonne-mile demand of 3.8%, he said.

“If you see the low growth in expected tonne-mile demand for 2022, the slowdown in imports/exports in China, and the expected supply side growth, we should not have had as strong a nine-months as we have had in 2022,” he said, adding that time-charter earnings have been strong in the third quarter, which “cannot be justified” if just the tonne-mile demand growth is considered.

“It is the inefficiency in the dry bulk fleet, the very high price of bunkers slowing ships down significantly, that has been reducing the effective supply of ships and hence, despite all the existing obstacles of an end to central bank stimulus, QE tapering, strong dollar, rising interest rates, threat of global stagflation, China slowdown, lingering Covid-19, and the Russia-Ukraine war, dry bulk shipping is still doing very well,” he said.

“That may, however, be coming to a temporary end as demand continues to weaken in the rest of the world, while de-congestion increases fleet efficiency and releases more supply into a demand-constricted market.”