Capesize bulker spot rates continue their slow decline amid market uncertainty as Brazil boosts iron-ore output, sector experts said. The capesize 5TC, a spot-rate average weighted across five routes, has fallen steadily since 24 May, registering a 40% slide to $19,845 per day on Tuesday, according to the Baltic Exchange. “We are sub-$20,000 now on capes, which to me is not surprising,” John Kartsonas, founder of asset management advisory firm Breakwave Advisors, told TradeWinds. “We expect capesize rates to bottom soon, but not really turn up to a significant way until later in the month.”

He said the market is betting on an imminent rally, but Breakwave Advisors is taking a different view. “Rather, a slower ascent might be in the cards, which eventually can lead to a spike, but our main scenario is rates bottom mid-month, turn up but fail to reach the futures level,” he said. The June freight-forward agreement rate (FFA) is “at the highest absolute premium to spot in many years”, but the paper market is running on high expectations that may only partly materialize, he said. FFA rates are all showing improvement through 2028 and are up at least $930 per day for the next three months.

He said vessel oversupply in the Atlantic basin is also depressing capesize rates, but tonnage should be taken up soon now that mine strikes in Colombia and northern Canada have ended. Data from UBS Evidence Lab shows Brazilian iron-ore shipments up 36% from the prior week and 38% year-to-date compared to 2020 to 9m tonnes, driven by producer Vale. UBS also noted that La Nina rains have subsided in Brazil’s iron-ore producing regions to allow for even higher output, but Brazilian iron ore at Chinese ports has fallen from a recent record high. “Tracking iron ore vessels outside of Chinese ports, we observe total inventory days were stable at 34 (below the 41-day average) this past week, including offshore stock, after declining in May,” the investment bank wrote in a note on Tuesday.

But uncertainty around Chinese steel demand continues to impact sentiment and commodities prices, leading to a 40% drop in steel rebar inventories since March, according to Reuters. This indicates easing demand, but it’s still too early to confirm that because extreme weather is slowing construction in China, Clarksons Platou Securities wrote in a note. “As reported by Reuters, the monsoon season is bringing rains to southern provinces while scorching temperatures hit the north,” it said. But capesize bulker rates should get a boost in the second half of 2021 off of seasonality for Brazilian iron-ore output, not to mention a slew of other upsides facing the sector, said Sevi Katemoglou, shipbroker and founder of Greek broking house Eastgate Research.

“Viewed from a macro perspective, the world’s post-pandemic economic recovery, healthy to strong demand for major dry bulk commodities, ample supply of those, soaring commodity prices, historically low orderbook-to-fleet ratio and projections for increased dry bulk tonnage utilization, all paint a rather bright picture for the short to mid-term,” she told TradeWinds.

Capesize rates may further rise on capesizes being hired possibly to carry two panamax-size loads iron ore and coal, she said. “It wouldn’t be unusual to witness certain panamax stems to be combined in order to be shipped via capes,” she said. “We shouldn’t also forget that we have recently seen grain cargoes shipped on capes. Albeit these are very rare instances and likely unable to have any major effect on the overall dry bulk shipping market, they are however telling of the market’s reaction to a heated panamax market.”

The panamax 5TC has gained 9.4% to $26,940 per day on Tuesday since 27 May. “A mixed market today for the Panamaxes with the Atlantic gaining further ground as many felt the tonnage count looked tighter in the north as good levels of demand continued to flow for the front haul trips from the north Americas,” the Baltic Exchange wrote on Tuesday.

 West Australian iron ore shipments gather pace

• Iron ore liftings from the major shippers in Australia have made a strong start to the month, averaging just over 3 MMT per day.
• This daily volume is about 11% higher than May’s average.
• If shipments sustain this pace through June, then volumes for the month will reach around 76.6m tonnes, up by 4.4% MoM and the highest monthly total since December last year, but still down by 4.6% versus June 2020.
• The uptick in shipments is likely in part down to extremely strong iron ore prices, which continue to hover above the $200 per tonne mark.
• But for some of the miners operating in the country, the approaching Australian financial year-end provides an extra incentive to book in sales at these prices and boost revenue.
• We expect volumes to remain strong over the coming weeks as Chinese demand shows little sign of waning in the short-term.

Shipments of forest products hits new monthly highs in May

• Forest product shipments totaled 10.8 MMT in May, rising 17% YoY and the highest monthly total on record.
• This figure includes logs and semi-processed goods such as timber and woodchips.
• Log shipments in May totaled just over 3 MMT, rising 9% MoM as producers take advantage of rising timber prices.
• The front-month timber contract on the CME hit high all-time highs in May at $1,686/t, over 400% higher YoY.
• Shipments in June are currently on track to set another record, averaging over 0.4 MMT per day, which would translate to an estimated 12.4 MMT shipped this month, 34% higher YoY.
• Liftings in Vietnam and Brazil were particularly strong, rising 51% and 34% YoY.
• Higher volumes in May saw Ultramaxes shipments of these goods increase 60% YoY to a new monthly record of 1.1 MMT.

Brazilian dry bulk imports set new record

• Brazilian dry bulk imports hit new monthly highs in May at 7.7 MMT, 21% higher YoY, and 28% higher than the 5-year average for this time of year.
• Volumes were boosted by record steel imports in May of 0.6 MMT versus only 24k tonnes a year ago.
• Industrial activity has picked up in the Latin American giant in recent months, with the country’s economy recovering to pre-pandemic levels in Q1 2021, according to Reuters.
• Supramaxes have enjoyed the majority of the added demand from Brazil with arrivals of the 40-64k dwt vessels also at its highest monthly total on record in May at 3.5 MMT, 32% higher YoY.
• Supramax coal imports in particular also saw their strongest month on record at over 0.6 MMT, 69% higher YoY.
• Weak rainfall in large parts of the country may have forced electricity producers to substitute in coal as a means of power.
• The Supramax market has remained hot relative to the other ship types in recent weeks, as these niche trades continue to outperform.

• A study by Global Energy Monitor surveyed 432 proposed coal projects worldwide and found that by 2030 a total of 2.2 BMT of new coal would be added into the output circulation per annum. This represents an increase of 30% from the current production levels. China, Russia, India and Australia represent 77% of new-mine activity. China has 452 MMT per annum (MTPA) of coal mine capacity under construction and 57 MTPA in planning; Australia has 31 MTPA under construction and 435 MTPA in planning; India has 13 MTPA under construction and 363 MTPA in planning; and Russia has 59 MTPA under construction and 240 MTPA in planning.

• The report stated that the expansion is at odds with the IEA’s net-zero roadmap, which requires no new coal mines, as well as the UN goals, which would require coal production to decline 11% per year through to 2030 in order to limit global warming to 1.5 degrees Celsius. Notably, 1.6 BMT per annum of proposed coal mine capacity is in the early stages of planning and therefore vulnerable to cancellation. However, 0.6 BMT per annum of new mine activity is already under construction.

As the China-Australia trade war moves from product to product, ranging from barley to lobsters to wine, Beijing has so far refrained from imposing any ban or barrier on Australian iron ore. As global prices soar for the ore, China’s insatiable appetite and inability to find suitable substitutes are net-net insulating Australia from Beijing’s punitive intent. According to the March edition of Resources and Energy Quarterly, Australia supplies 53% of global demand for iron ore, of which China consumes 57%. Australia currently supplies 68% of China’s iron ore imports. Prices for the steelmaking commodity hit a record high of US$233 per tonne earlier this month, an uptrend that began last year but is now increasingly a reflection of growing global inflation fears and market concerns of Covid-caused supply disruptions in Brazil and elsewhere. Those prices fell by as much as 20% this week when China’s National Development and Reform Commission (NDRC) announced a ”zero tolerance” crackdown on ”excessive speculation” of the ore amid reports of commodity trader hoarding.

”The relevant regulatory authorities will closely follow and monitor commodity price trends, strengthen the joint supervision of commodity futures and spot markets, ”zero tolerance” for illegal acts, continue to increase law enforcement inspection efforts, check abnormal transactions and malicious speculation, resolutely and severely investigate and punish in accordance with the law,” a NDRC statement read. Analysts still expect Australia’s iron ore exports will continue to grow. ”Australia’s export volumes are expected to grow from around 900 million tonnes in 2020–21 to 1.1 billion tonnes by 2025–26, as several mines open or expand in Western Australia,” the REQ report predicted. China could eventually have other viable options outside of Australia. Indeed, Beijing earlier this week signaled its intent to diversify its supply from Australia and boost self-sufficiency.

In the medium term, the REQ report notes iron ore exports are expected to increase from Africa and Latin America. Rio Tinto’s tie-up with China’s Chinalco in the Simandou project in a remote part of Guinea is one new particular source with solid prospects. Elsewhere in the same region, a consortium of Chinese, French and Singaporean companies recently signed with the government to develop two iron ore blocks for US$14 billion. China is also looking at two large deposits elsewhere on the continent, though these are seen by market analysts as longer-term prospects.

In the shorter term, few analysts believe China can quickly pivot from Australian supplies as long as its steel production remains on the same up-and-up trajectory. Most of China’s various infrastructure projects, from high-speed train lines to urban modernization, are steel-intensive. Meanwhile, a long-term China shift away from Australian iron ore will be complicated and potentially full of supply chain-disrupting pitfalls and economic risks.

An early 2021 China Ministry of Industry and Information Technology report, only recently picked up by the Australian media, outlined Beijing’s plans not only for bolstering local iron ore supplies but also investment plans to boost production capacity in nations including Russia, Myanmar, Kazakhstan and Mongolia. The plan calls for achieving 45% ‘self-sufficiency” in iron ore in less than five years. In that direction, the NDRC said a week ago it wants to see more domestic production and a generally more diverse supply base.

China could also use more scrap metal to increase its steel production. Separately this week Chinese authorities lifted tariffs on imports of scrap to cushion the blow of higher ore prices but at the same time placed tariffs on exports of some steel goods. The burning question in Australia is which product, or products, will be hit next by punitive Chinese tariffs or trade restrictions. Last week, China signaled its intent in a statement that said bilateral trust had been ‘shattered” after the suspension of Belt and Road Initiative projects in Australia. A Chinese government statement said ”The Chinese authorities have no choice but to make a legitimate and necessary response. The responsibility is fully on the Australia side.” China’s restrictions and tariffs to date have hurt: Australia’s A$1 billion wine export industry to China saw a first quarter fall of 95% after trade war tariffs were imposed. A next trade flare-up could erupt if the government scraps the 99-year Port of Darwin lease granted to a Chinese company and signed by the Northern Territory government five years ago. Canberra said recently it would assess every agreement made by a state government with China.

But regardless of which Australian export industry China targets next, iron ore will likely remain immune in the short term — unless Beijing wants to curtail its steel production in the middle of a post-pandemic infrastructure-building boom. Australia’s LNG exports to China are similarly immune in the mid-term for the same reasons. Western Australia, which is home to the majority of Australia’s iron ore and its highest quality deposits, has made some very cursory moves to think beyond China, even as the re-elected McGowan Labor government is clear of the centrality of the trade relationship to the state’s fortunes. The government has been talking up commercializing deposits that never quite made commercial sense even at the height of the iron boom and amid persistent talk of creating a ”green steel” industry.

The state Labor government, which is essentially a one-party democracy since its election landslide that left the Liberal Party just two seats in the Lower House, has been quiet on China recently.

Spot rates for capesize bulkers slid throughout the past week but should rise this coming week after hitting bottom, industry experts say. The capesize 5TC, a spot-rate average weighted across five routes, declined 18.3% over the past seven days to $20,933 per day on Friday, pulling the greater market down with it despite rate gains in the smaller asset classes. The Baltic Dry Index (BDI) dropped 6.1% over the same period to 2,438 points, according to Baltic Exchange data. “This week witnessed a correction on the spot earnings for the larger asset class of capesizes which triggered some futures sell-off,” Sevi Katemoglou, shipbroker and founder of Greek broking house Eastgate Research, told TradeWinds. “We would, however, speculate that the physical freight market has reached a bottom and we’d expect to witness a more positive sentiment come next week.”

Capesizes are doing much better on paper but perhaps too well, according to John Kartsonas, founder of asset management advisory firm Breakwave Advisors. FFA rates show only gains through the end of 2021 and the next seven years, jumping as much as $1,257 per day to $34,357 per day for August. “Expectations are running way too hot versus the reality and thus the relationship between the two is the widest we have seen in many years,” Kartsonas told TradeWinds. “That leaves very little room for error, meaning spot rates have to turn up very soon and rally back towards the 30,000 mark where the futures are pointing to. As we said last week, spot and FFAs in capesizes is totally disconnected.” He said he expects that capesize FFA rates will actually “begin to erode” early next week, while the physical rates may start heading upward. “Now, this is shipping and things can change fast, but the risk-reward as we stand is not on the side of the futures, at least based on history,” he said. “Having said that, I do believe by mid-June that capesize rates will begin to stabilize and slowly move higher, but the correction in the spot market has been too deep for rates to reach above 30,000 fast enough to justify the June and July futures levels.”

Katemoglou attributed last week’s slide in capesize rates to strikes and port delays in the Atlantic basin and market reaction to China’s warmings against manipulation of soaring commodity prices. “That being said, we wouldn’t expect these announcements from Beijing to have any meaningful impact on the overall seemingly bright picture for the segment, as supply and demand fundamentals remain positive and give ground to optimistic expectations until year-end,” she said. At the same time, the sub-capesize segment are enjoying higher rates mostly due to China’s demand for grains. “Chinese appetite for grains remains in the ‘almost insatiable’ territory; a combination of the country’s swineherd recovery and the need for inventory restocking,” Katemoglou said. She said premiums are being paid for the smaller ships to carry grains from South America to China, prompting owners to ballast vessels to East Coast South America from China to catch the lucrative trade. “This can prove to be tricky, as an influx of ballasters in the Atlantic could theoretically pressure rates downward but, for the moment, we feel that there is enough cargo volume to absorb available tonnage at strong rates,” she said.

“US grain exports into China are also noticeably up on year-on-year terms, offering further support to the segment, while China is seemingly importing coal from destinations further afar as a by-product of the Sino-Australian trade spat, thus increasing tonne-mile demand for the sub-cape segments.”

So what does all of this mean for the shares of listed bulker owners? “Looking ahead, demand remains strong, supply of iron ore and coal will rise, and inventory levels will have to be restocked,” Jefferies analyst Randy Giveans told TradeWinds. “For all of those reasons, we expect capesize rates to improve in the coming weeks and months. With that, we expect the large dry bulk equities with capesize exposure to rise along with rates.”

The supramax market is now earning a premium over all of the other bulk carrier classes assessed by the Baltic Exchange. These ships have surged by 138% year-to-date to around $27,000 per day, the greatest year-to-date percentage gain of all the dry segments, new research from Braemar ACM shows.

The booming steel trade has bolstered Supras as have some of the less glamorous commodities such as cement and aggregates.

Indian iron ore exports on Supras have boomed this year and there has also been a noticeable uptick from other producers such as Liberia and Norway, and from distribution hubs such as Bahrain.

Supramaxes have also seen a 20% year-on-year increase in copper concentrate shipments so far this year while trade of manganese ore, a key steelmaking ingredient, has also jumped 14%.

Supramax shipments of cement so far this year are up by 30% year-on-year, while aggregates moved by Supras had grown 11% year-on-year in 2021 so far.

Over the first five months of the year, Agri bulk trade on Supras has grown by 10% year-on-year.

“The bottom line is that the geared fleet is well placed to supply re-opening economies with the wide variety of raw materials needed to get growth back on track,” a report from Braemar ACM, published yesterday, stated.

This is also evident in rapidly rising vessel speeds. Average laden speeds for Supras jumped to 11.6 kts in May, up by 6% from 2020’s average, while ballast speeds have increased by 3% to 12.1 kts, despite bunker prices also being on the rise.

The new king

Supramaxes have now taken the lead as the highest-earning bulker size, as the geared ships continue to outperform larger vessels and benefit from the resurgence in economic activity around the world.

Up and away

The Supramax market has gone from strength to strength so far this year, with these vessels now earning a premium over all of the other designs assessed by the Baltic Exchange. Since the start of the year, freight rates for these ships have surged by 138% to over $27,000 per day. This is the greatest YTD percentage gain of all of the dry asset classes, and while these ships often outperform Capes in weak markets, this kind of premium while the wider market is so strong is almost unheard of. Over the last few weeks, the Baltic’s assessed 58k dwt ship has also clawed back a premium to the 38k dwt Handy, after trading at near-parity last year.

Trade boost

Naturally, underlying the surge in freight has been a jump in raw material trade. Total dry bulk shipments on geared vessels hit a record 155.7 MMT last month, an improvement of 4% MoM and 16% YoY, excluding cabotage trade. Trade on ships in our Supramax group category specifically grew by 5% MoM and 17% YoY to over  102 MMT in May. Within this increase, there are a few specific commodities worth mentioning. We have covered the boost in steel trade and subsequent growth in long-haul employment on these ships extensively, but some of the less glamorous commodities are also in high demand. Supramax shipments of cement so far this year are up by 30% YoY, and hit a record 7.8 MMT in March, accounting for 745 voyages. The jump in imports has partly been driven by China (which sits on the margin of being an importer or exporter) as the recent infrastructure push has raised domestic demand. But we’ve also seen a surge in demand from developing countries such as Bangladesh, Ghana and the Ivory Coast, which are also urbanizing at a rapid pace. At the same time, US imports of this material grew by 25% YoY over January – May. This is likely down to elevated construction activity following the country’s enormous stimulus injection, which is now being felt in the dry bulk market. Volumes of aggregates on Supras, another relatively low-value commodity group, have also made gains. Some market share has been lost to the bigger ships, given that stem sizes for this type of good can be upped relatively easily, but liftings grew by 11% YoY in the last five months to almost 30 MMT, underpinned again by growth from developing regions.

Agribulks in the Pacific

In absolute terms, the agribulks have also been a major driver of growth in tonnes moved. Over the first five months of the year, agribulk trade on Supras has grown by 10% YoY to almost 75 MMT. These ships have benefitted from bumper exports of soybeans and corn from North and South America, backed by enormous Chinese demand, but we’ve also seen this market enjoy gains in trades which have been out of the spotlight. Wheat exports from Australia have surged this year, with volumes on Supras hitting a record 1.5 MMT in April. YTD, wheat liftings on these ships are up by 170% YoY at 5.7 MMT (113 shipments), and have mostly headed to buyers in Southeast Asia. This is in part driven by favorable crop conditions, but also a lack of drought in East Australia, which in the past few years has restricted total volumes available for export. Meanwhile, Australian Barley exports, which were hammered by Chinese tariffs last year, have now recovered back to 2018 levels as Saudi Arabia, Vietnam and Thailand emerge as buyers of this crop.

Ore-some growth

As metal prices surge across the board, heightened demand for their raw ores and concentrates has benefitted the smaller bulkers, particularly in the basins of the Pacific and Indian Ocean. Supramaxes have seen a 20% YoY increase in copper concentrate shipments this year, as prices of the refined metal have soared by as much as 80% since the start of 2020. China is the biggest player in this market, pulling in tonnes from Chile and Peru. Trade of manganese ore, a key steelmaking ingredient, has also received a bump in volumes over the past few months as the global steel industry runs hot. YTD volumes are up by 14% YoY at 12.4 MMT, backed by strong imports from China. Iron ore and Supramaxes are rarely mentioned in the same sentence, but scarce supply of this commodity and regional disparities in steelmaking activity have driven record levels of cargoes shipped on these vessels. Supply from Brazil and Australia, which overwhelmingly ship on Capesizes, remains relatively inflexible, and so China has looked to less traditional sources to satisfy record levels of steel output, which tend to use smaller ships.

Indian iron ore exports on Supras have boomed, which is partly down to lower domestic demand there, but we’ve also recorded an uptick from other producers such as Liberia and Norway, and from distribution hubs such as Bahrain.

Other growth stories

There are plenty of other positive growth stories across the smaller commodities, but the bottom line is that the geared fleet is well placed to supply re-opening economies with the wide variety of raw materials needed to get growth back on track. This is also evident in rising vessel speeds, which indicate that spare capacity is being squeezed out of the fleet where it can be. Average laden speeds for Supras at 11.6 kts in May was up by 6% from 2020’s average, while ballast speeds increased by 3% to 12.1 kts, despite bunker prices also being on the rise.

At these high utilization rates, we expect the continued global economic rebound to keep rates elevated over the next few months.

Record high freight rates for containerized cargoes and a severe lack of ship capacity are forcing some shippers to turn to the bulk or ro-ro trades. The phenomenon was reported to have started in February, and although the peak may have already been reached, volumes of goods including bagged rice, cement and fertilizers continue to flow into the dry bulk and break bulk sectors. An owner specializing in the smaller-sized bulkers which were being affected by this short-term trend said between 5% and 8% of all the cargoes it moves from the Far East to the west coast of South America, Europe, and the US were container cargoes spilling into the conventional bulker market, with China being the primary source. That equates to roughly 300,000 tonnes.

Cargoes included chemicals in bags, semi-finished steel parcels, and general cargo, predominantly lumbar, the owner said, adding that there were no signs of the new trend slowing down. Demand for bagged goods on bulkers were said to be a contributing factor in the rate rise for supramaxes, which is currently trading above $30,000 per day. However, a Europe-based analyst said that the effect of these trades was limited, given the volumes involved. Overall volumes for bagged rice were “microscopic”, he said, despite the 150% growth surge year-on-year from a very low base in 2020. Another analyst said that it was more likely that the supramax rate surge had been impacted by “extremely high trade volumes” of grains and other minor bulks, combined with inefficiencies and congestion tying up ships for longer.

Consultancy Dynamar noted that the trades were taking place on non-box-shaped vessels in the 45,000 dwt-65,000 dwt range carrying up to 100 teu on deck, with as much as 900 teu carried below deck as partial cargoes. Citing a trade journal, it said that logistical, technical, and contractual implications meant that the new business activity was not suitable for all bulk operators. Atlantic Container Line, which operates multipurpose ships able to carry containers, ro-ro freight, and vehicles, said it had received many requests to “de-containerize” cargo earlier in the year, but noted the peak in the North Atlantic occurred in the period from mid-February to the end of May. Transport involved all kinds of goods from cardboard boxes stacked/shrink-wrapped on euro pallets, to small crates and loose/unpacked items for the auto and agricultural equipment industries, as well as steel coils and bars, it said.

There was also an increase in shipper-owned containers, which were handled in the container cells or on trailers in the ro-ro decks. However, de-containerized volumes appeared to be slowing down, due to supply chains able to adjust to accommodate longer lead times, while ro-ro space availability was also becoming tighter. In addition, there was not the same degree of “space panic” with shippers able to pre-plan requirements weeks ahead, the company said.

As with the container market, overall ro-ro/breakbulk/project volume in the westbound direction is still quite strong, and the market stays active until the end of July, then slows a bit in August-September, before rebounding again in October. “The Covid effect has turned traditional seasonal patterns upside down this year, but it is fair to say that overall volumes will probably maintain their brisk pace for the rest of the year,” said Atlantic Container Line. For container lines already struggling to ship the volumes being booked, the loss of a handful of product categories will come as no great loss.

Hapag-Lloyd chief executive Rolf Habben Jansen recently said the movement of volumes to bulk trades was not something that the German carrier had noticed. The containerization of bulk goods is only viable when freight rates are low, and generally takes place on the lower demand backhaul leg of voyages. In normal circumstances, box lines are prepared to accept low-freight-rate cargoes rather than sail with just empties on board. In the current supply chain crisis, however, carriers have more incentive to return equipment that is in short supply to export destinations so that it can be used for the more lucrative head haul, particularly if it avoids having the container tied up in the hinterland while the box is loaded.

With additional reporting by Janet Porter and James Baker

Moody’s Investors Service has changed its view of shipping against a background of strong demand for goods and commodities. The US credit ratings agency upgraded its outlook to positive over the next year to 18 months, from stable previously, as the global economy recovers from the Covid-19 pandemic.

Moody’s expects the aggregate Ebitda of shipping companies it assesses to grow by around 29% this year. “The change in outlook to positive reflects our view that demand will significantly outpace supply in key shipping segments for the rest of this year and likely into 2022, as growth in the global fleet remains muted,” said Daniel Harlid, Moody’s vice president and senior analyst.

“The pandemic has also put the vulnerability of just-in-time supply chains back on the corporate agenda and could potentially lead to more regionalization, resulting in both supply and production moving closer to the end customer and a reconfiguration of a number of shipping routes.” Moody’s is tipping bulker fleet growth of 1% this year to 925m dwt, but vessel demand is set to increase between 3% and 5%.

The agency also expects the boxship fleet to grow 4% this year to 24.55m teu, with demand rising between 5% to 7%. And tankers should see supply growth of 2% to 527m dwt, with demand increasing 6%, Moody’s said. “We believe demand will outstrip supply significantly in the container shipping and dry bulk segments, driven not only by robust demand but also by historically low orderbooks for new vessels,” the agency said. “Weaker market conditions for the tanker segment could improve towards year-end.”

The upgrade is another positive sign for owners enjoying record rates in some sectors. Moody’s had maintained a stable outlook on the industry since November 2020. The agency expects further strengthening of bulker markets. The company assesses average rates as 70% higher than before the Covid-19 outbreak early last year. “Charter rates will likely remain high, especially over the next six months,” Moody’s said. The same goes for boxships, with Moody’s saying: “We expect freight rates to remain at their current record levels throughout the remainder of this year and possibly continue at high levels during 2022.”

Tankers are expected to continue on a stable footing at worse. Financial performance in 2020 was inflated by extremely high charter rates during the second quarter as oil prices plummeted and demand for floating storage peaked, Moody’s argued. “Charter rates have subsequently fallen back to pre-coronavirus levels or below, but could improve towards the end of 2021,” the company said. “As coronavirus-induced restrictions abate globally during the course of this year demand for oil should continue to pick up, offering an increasingly supportive environment for the tanker market.”

The International Energy Agency (IEA) expects global oil demand to reach pre-pandemic levels in 2022, growing by around 6% in 2021 and 3% next year. However, Moody’s warned all its forecasts are based on the assumption that the global economy will continue to recover from the pandemic as vaccinations are rolled out.