Norwegian operator Torvald Klaveness believes bulker earnings will climb again after being “hammered down” in recent days. Key to this is charterers no longer being able to hold back cargoes to take advantage of falling spot rates.

Peter Lindstrom, the company’s head of research and data platform, has observed charterers postponing cargo nominations. “A charterer who is sitting on a contractual obligation to move a commodity from A to B has a laycan window, typically one to two weeks, which gives them some flexibility around when the vessel needs to be nominated,” he explained. “When freight prices are falling the charterer is incentivized to hold back on nominations, if possible, as this will lower their freight cost,” he added.

The analyst argues that the number of actual cargoes being circulated in the market since mid-October is lower than the underlying demand for vessels. “However, this can only last for so long as the charterer needs to nominate a vessel within the laycan period,” he said. When spot rates bottom out, postponed nominations will resurface, Lindstrom believes. “Rates tend to increase quite quickly again,” he said. “We are optimistic for freight rates in the very short term and into 2022.”

Lindstrom points to all-time low fleet growth, combined with a resilient demand outlook, as backing for the company’s belief in a rise in earnings again. Bulker freight rates have been trending upwards since 2016. Rates peaked in mid-October on continued demand and port congestion. But earlier in November, weakening bulker markets pushed the Baltic Dry Index (BDI) to its lowest level since 11 June. “Since mid-October we have seen a steep correction in spot rates and forward values,” Lindstrom said.

Klaveness does not pretend to have all the answers as to why this has happened, but has a number of theories. There has been weaker sentiment linked to negative growth in Chinese steel production since July, the company said. It blames a softening domestic property market and a crunch on energy supplies for manufacturing. “As China accounts for about 70% of the seaborne volumes of iron ore there should be some risk priced in, in terms of Chinese iron-ore demand in 2022,” Lindstrom said. “This has clearly impacted sentiment negatively. However, we argue the restricting factor for the iron-ore trade at the moment is the supply side, not the demand side. Thus, lower Chinese demand does not necessarily mean lower volumes of seaborne trade,” he added. There has also been a sharp correction in commodity prices, following on from the drop in steel production, Lindstrom explains. “When commodity prices nosedive like this, all traders and those end users who can afford to wait step back and wait for the fall to run its course. Only when a bottom is perceived to be near will demand from these buyers resurface. Thus, during a price fall the actual purchases of commodities will be less than the underlying demand as those who can afford to wait will wait,” he added.

Klaveness believes coal prices could increase, however, with winter increasing demand. “We believe there still will be a deficit of coal in China and the rest of the world in the coming months and years,” Lindstrom said. “As with iron ore, we argue that the bottleneck for the seaborne trade of coal is supply, not demand. Thus, we expect the seaborne trade of coal to be resilient in the coming year,” he added. But the company is not expecting big growth in coal shipments either, although the rise will exceed minimal fleet growth in the coming two years.

Another factor in the rate drop has been rapidly reducing port congestion, releasing ships into the spot market, Lindstrom believes. This could be because of fewer cargoes being loaded as commodity prices fell, he argues. “As commodity prices show signs of stabilizing, we think that congestion will bottom out and start to increase again,” Lindstrom added.