A softened dry bulk market should firm up over the rest of the year despite concerns around China’s Covid-19 lockdowns, the Russo-Ukrainian war and Brazil’s rainy weather, analysts say. Average bulker spot rates slid over recent weeks because of these uncertainties but should recover as supply remains tight for 2022, B Riley Financial’s Liam Burke told TradeWinds. “With fleet growth anticipated to grow 2.7% year over year in 2022, the sector does not need significant growth in demand to maintain a healthy rate environment,” he wrote in a client’s note. “We are expecting stable rates in 2022, with dry bulk operators generating TCE [time charter equivalent] revenues well in excess of cash costs.”

Average spot rates for all bulker sizes soared in March before falling sharply during the second half of the month and into April. Capesizes saw the steepest decline. Nonetheless, Burke named Eagle Bulk Shipping, Genco Shipping & Trading and Pangaea Logistics as listed owners posting shareholder returns while making good money in these risky times. And he believes fiscally disciplined outfits will continue to do so if they can navigate the uncertainty ahead. Burke said that spot rates for ships smaller than capesizes should benefit from countries seeking coal and grain from other exporters besides Russia and Ukraine as the war continues. “With coal prices remaining high, markets are trying to import coal from wherever in the world it is available,” he said.

Meanwhile, capesize rates should rebound this year due to higher steel production following seasonal weakness driven by Brazil’s rainy weather. Brazilian miner Vale’s first-quarter iron ore production fell 6% to 63.9m tonnes from a year ago due to heavy January rainfall in the state of Minas Gerais, Reuters reported on Tuesday. Production was also lower due to mine upkeep that should, however, allow Vale to uphold 2022 guidance of 320 to 335 MMT of the steel-making commodity. “We believe recovering iron ore cargo demand combined with strong coal demand bode well for capesize rates for the balance of 2022,” Burke said. “Despite anticipated rate volatility for the balance of 2022, increased global demand for coal and longer tonne-miles required to source coal from non-Russian producers should support spot rates, in our view.”

But sanctions against Russia and disruption to Ukraine’s growing season could also hurt rates for the smaller vessels by creating a global grain shortage that lowers demand. “Ukraine and Russia generate about 15% of the global grain supply and should there be a disruption in Russian and Ukraine exports later in 2022, there could be a potential supply shock,” Burke said. “The supply gap created by the Ukraine conflict could be bridged from alternative sources such as the US and Australia that would increase tonne-mile demand but, unlike coal, grain is not as readily available from suppliers outside of Ukraine.”

Oslo-based Fearnley Securities gave a less upbeat forecast for dry bulk rates as China’s plans to raise annual domestic coal output by 13.8% to 4.6 BMT amid the geopolitical uncertainties may curtail demand. The investment bank also expects the lockdowns in China to hurt iron-ore demand, while the ability of Brazil and other exporters to produce the mineral to be a “key concern” for dry bulk shipping. But it still managed to shed a ray of optimism for the sector, despite the uncertain times. “On the other hand, congestion is worsening on the back of Chinese lockdowns and is increasingly likely to add support to the market for some time.”

Dry bulk outlook for the rest of 2022 will be “a battle” between tight supply and low demand that will lead to market volatility, said John Kartsonas, founder of dry bulk ETF-trading platform Breakwave Advisors. “However, the significant distortions in trade patterns combined with higher overall voyage days have been enough to boost rates to high levels and have the potential to push freight volumes to very high levels, similar to last year,” he told TradeWinds. “How the above factors play out is anybody’s guess, but it won’t be smooth sailing for the rest of the year either way.”