Consensus is building that 2022 will see weaker dry bulk rates than 2021’s spectacular run. However, that does not mean a rate collapse — far from it; analysts are expecting another profitable year for owners and operators. In 2021, the sector saw earnings hit multi-year highs as economies recovered from the pandemic effect, leading to strong demand growth. Coupled with that was increased congestion as tight travel restrictions and quarantine caused a snarl-up at ports around the world, as did bad weather. China’s ban on Australian coal added to idled vessels.

The containerization effect led to increased demand for the smaller-sized bulk carriers, which have performed well throughout 2021. Low fleet growth also played its part, and the muted orderbook will likely allow a floor to develop, preventing rates from falling through it. While there are question marks over iron ore and coal trades, strong grains and minor bulks should hold through 2022, according to analysts. Ship brokerage Braemar ACM expects “higher highs” to dominate the market next year, although the peak in the current cycle could be in mid-2022. New efficiency regulations in 2023 will likely add to strength as vessels are forced to slow down, effectively curtailing overall supply, its dry bulk analyst Nick Ristic said.

Dry bulk demand growth is estimated at 3%-4%, largely tracking global gross domestic product forecasts for 2022, while supply growth is pegged at around 2%-2.5%, a scenario boding well for rates. Even if demand ends up lower, it will still exceed supply estimates. “The market is set up for a good year in 2022,” said Jefferies senior vice-president of equity research Randy Giveans. Yet there are exogenous factors to consider, such as congestion and how the Australia-China political spat will develop and influence rates. Mr. Giveans estimates that capesize rates could average $26,000 per day in 2022, from $33,500 in 2021, with kamsarmaxes at $23,000, down from $27,000, and Supras at $22,000 from about the $27,000 level. Handysizes, meanwhile, are seen averaging $20,000, down from $25,500 in 2021.    

While supply-demand fundamentals will undoubtedly lead to a positive rates story, there are some more uncertainties relating to China’s economic performance, real estate, steel production, and the new coronavirus variant Omicron and its impact on the recovering global industrial output. Other factors include iron ore volumes from Brazil, and whether coal trades will keep pace. Headwinds to China’s economy are a cause for concern, given the dry bulk market’s heavy dependence on shipping commodities there. According to Wood Mackenzie, GDP growth could slow to 5.4% in 2022 from 8.1% this year. It is expected to decelerate to 4% in the final quarter of 2021 from 4.9% in the previous three months.

China’s steel output fell 23% in October to 71.6 MMT, the lowest level of the year, as the government tries to cut pollution ahead of the winter Olympics, which are being held in Beijing in February. In the first 10 months of 2021, its production has contracted by 0.7% versus the same period in 2020, according to the latest statistics by the World Steel Association. While that is bearish news for the capesize and panamax segments — given they are workhorses for iron ore and coal carriage — growth in other countries, such as Japan, India, and the US, is a positive factor supporting the smaller sizes.

Besides the Evergrande debt default — albeit averted for now — new cases of coronavirus and ensuing restrictions keep worries alive. “China is a big unknown,” said Maritime Strategies International senior dry bulk analyst Alex Stuart-Grumbar. “We definitely see next year softer than this year because of weakness in China, with demand tapering off in the property sector, which will drag on capesizes,” he said. Mr. Stuart-Grumbar added that while iron ore demand looks bleak for now, coal appetite is strong, given high gas prices and shortages during what looks to be a severe winter. How dry bulk fares will depend on whether there is a ‘hard’ or ‘soft’ restructuring in the property sector, he said.

Breakwave Advisors’ founder John Kartsonas echoed these views. The futures market for next year came off over recent weeks as China started to look weak and commodities prices reflected that, he said, adding that he expects volatility to continue in 2022 as the market is increasingly sentiment driven. “If the rest of the world slows down to below the trend line, we’ll have a bad year,” he said. “We’ll have a strong year if coal ends up above expectations.” Low fleet growth — the lowest in decades — bodes well for the market, and a muted orderbook is also worth noting. Yard capacity has been constrained with containership orders, and uncertainty over future fuels has kept owners away from contracting new tonnage unless renewing their fleets. Financial considerations as newbuilding prices rise have also meant that speculative orders are unlikely. According to Lloyd’s List Intelligence, 319 bulkers have so far been delivered in 2021, mostly in the 60,000 dwt-100,000 dwt size category, out of a full-year total expected of 412, with 494 vessels expected to hit the market in 2022, based on the orderbook.

Only 72 removals were recorded in 2021, amounting to just 10 MDWT, given how lucrative the spot market has been this year. The whole fleet amounted to 929 MDWT in 2021, rising slightly to 967 MDWT in 2022, Lloyd’s List Intelligence data shows, more as a function of low scrapping rates — as the fleet is young — rather than new deliveries. So, while question marks remain over the demand evolution next year, the dry bulk market is being influenced by the supply side, with utilization across segments remaining high.  Even if demand falters, analysts are confident it will still exceed vessel supply growth.