The dry bulk market is still going strong, despite the threat of a looming global economic slowdown that could curtail demand, according to analysts. That is because fleet constraints are very much part of the dynamic influencing the market. While rates were under pressure because of current sentiment, strong fundamentals would prevail, according to Berge Bulk chief executive James Marshall. “While we are conscious of the negative macro-sentiment, we are still positive [on the market], due to the fundamentals in the second half of the year, leading to much stronger rates,” he told Lloyd’s List. The Singapore-based owner was particularly positive about the capesize market, based on the expectation that about 40 MMT of additional iron ore will be shipped in the second half of the year compared with the first six months, even as Brazil’s mining giant Vale revised down its full-year production estimate. Other supportive factors include continued congestion, although easing of late, coronavirus-related delays, anticipated weather disruptions and high fuel prices causing a slowing of the fleet, he said.

“There may be some negativity for minor bulks given the close link to GDP but increasing infrastructure stimulus will help support the market”, from China, in the near-term, and over the longer term, the US, he said. “In the medium term a constrained supply of newbuildings as yards are busy with LNG and containership orders, plus increased supply of commodities (particularly new iron ore), leads to a positive medium-term picture.” In response to recent news about China’s potential lifting of its ban on Australian coal, Mr Marshall said that a “better relationship is positive for trade” even if it could mean revised trade patterns. “If China sources more Australian coal again, other countries could go further afield, so there would be a ripple effect on tonne-mile demand.” Meanwhile, the emergence of a grain corridor from Ukraine will be positive for the dry bulk market, he said. “While extra tonne-miles and logistical issues could ease, we expect these to remain difficult for the medium term.”

Arrow Shipbroking, in a research note focused on the supramax segment, said that its models do not yet point to a strong bearish change in the market dynamics, although the third quarter of the year so far is showing mixed readings, with a tonne-mile drop partially offset by congestion. The drop in tonne-mile demand has come from the major bulks such as iron ore, coal, and grains, while the slowdown in the minor bulks have yet to materialize significantly, it said. However, steel trades, especially long-haul, could be hit, with a “pronounced impact” on the supramax segment as it is the third-most important commodity for this asset class. “Lower European steel consumption, a weaker euro, and an uptick in Chinese demand over the coming months point to a looming contraction in the seaborne steel trade,” Arrow said.

Global steel output declined 5.9% to 158.1 MMT in June versus the same period a year earlier as all regions registered a drop, the latest statistics from the World Steel Association show. India was the only leading country to note an increase. China’s decline was less acute than in many months, dropping 3.3% to 90 MMT in June, while the six-month figure shows a decrease of 6.5% compared with the same period last year. Meanwhile lower commodity prices are indicative of demand coming under pressure, according to London-based consultants Maritime Strategies International, with average freight rates between July and December at 20% below levels a month ago based on Forward Freight Agreement contracts. “Signs are mounting to suggest a global economic downturn will stifle demand for other goods including minor bulk,” it said, adding that although supramaxes should get support from grains, rates could soften because of strong near-term vessel deliveries. It thus expects spot rates around the $20,000 per day mark in the fourth quarter of the year. Similarly, daily handysize rates could weaken to less than $20,000 by the end of the year and $15,000 by the first quarter as inefficiencies ease, presenting downside risks for 2023, MSI said in a report. Another factor to consider is falling container rates, which could be bearish for bulkers. “The loosening of some containership market balances would also ease demand for bulkers to carry container cargoes if the downward movement in rates can be maintained,” ship brokerage Simpson Spence Young said in a half-year review.