It’s been a tricky month reading the markets. After a positive performance in May, the bulk carrier freight market has felt jaded in June. Was it a case of broker absence after all the partying at Posidonia, itself following the jubilee long weekend in the UK? Not really. In fact, the real problem could be that demand fundamentals have begun to weaken as inflation and higher interest rates have filtered through to consumer behavior, reducing global consumption and therefore reducing industrial activity and construction, undermining demand growth for raw materials. Copper prices, a bellwether for the global economy, fell 14% year-on-year to $8,387 a tonne on June 23, a 16-month low. Prices for other industrial metals are also down to year-ago levels in many cases.

The big manufacturing economies are looking weaker than a quarter ago. Germany’s Bundesbank business activity survey is unchanged in the 13 weeks to June 19 compared to the previous 13 weeks, indicating stagnation. Chinese real estate investment fell 4% year-on-year for May after a 2.7% drop in April. Steel output was down 2.3% year-on-year in May and cement output down 17%. Meanwhile, domestic mining output was up 7% year-on-year in May with coal mining output up 8.2%. China’s weekly iron ore imports have been under 18 MMT since May 15 and could be under 80 MMT for June compared to 88 MMT in May. Together these data indicate that urbanization in China, the great driver of bulk commodity demand for the last 30 years, is slowing down. China is also relying more on domestic coal output than previously as international coal prices spike. The question is whether there will be a long-term effect on the bulk carrier freight market or if this will only add to volatility?

High grain prices are affecting trade more than was thought likely even a month ago. Global grain exports were 43.6 MMT in May compared to 54 MMT in May 2021, while estimated second quarter grain exports this year of 125 MMT would be well down on 153 MMT for the second quarter of 2021. One bright spot has been the coal market despite China’s persistence in growing domestic output. Global coal exports for May were just shy of 120 MMT, up from 115 MMT in April and 116 MMT in May 2021. For the first 20 days of June, global coal exports have been 93 MMT, suggesting over 120 MMT for the month.

In the month to June 23, the Baltic Capesize Index has lost 47%, falling from 4,602 to 2,419 points. The two main fronthaul indices, C3 (Brazil-China) and C5 (Australia-China) are down 23% and 22% respectively, while in dollars, C5 is down 47% from $38,169 to $20,061. The Baltic Exchange P5TC average of panamax freight earnings has fallen 19% from $30,394 to $22,709. The Supramax 10 TC average is down 13% from $31,002 to $27,123 and the Handysize 7TC average is down 20% from $29,956 to $24,096. The Baltic Dry Index averaged 2,920 points in May; it looks like it will be under 2,500 points for June, which would run below last year and against seasonal expectations. Was it something we said? Just last month, we wrote that “a theme is emerging here of steady, profitable levels, a kind of sunlit uplands whence owners would be disheartened to depart. Fortunately, the fundamentals of supply and demand, and the auguries of most shipbroker research departments, suggest that their sun-soaked sojourn could last several years yet.” More optimistic market participants might argue that the freight corrections of June are a blip caused by people being away from their desks and that inflation is not the enemy of freight markets. Basis some historical periods of higher inflation, they would be right. Less optimistic market participants might argue that the issue this time is that interest rates are, and wages are significantly lagging inflation, indicating a consumption crunch later this year, while stock markets are already in correction territory and still falling.

It all points to a nervous few weeks until everybody goes away in August, with anxious individuals referring regularly to FFA prices, which still show rising values out to the next quarter (the capesize 5TC is currently priced around $30,000 for September). If sentiment should undermine the futures market in the short term, the holiday season will be a sought-for relief for owners and operators with expensive time-chartered ships on their books.