ING is expecting uneven performances of the main shipping sectors this year despite an overall strong rebound in global seaborne trade. In its outlook, the Dutch bank forecasts a 6% growth in total trade volumes in 2021, reversing a 5% fall last year. But ING expects container and dry bulk shipping to benefit more from the trade growth, as tankers continue to suffer from weak rates.

“The industry will benefit from world trade recovery in 2021, with average seaborne trade volumes expected to end above pre-pandemic levels,” ING analysts Rico Luman, Oleksiy Soroka and Joanna Konings wrote. “Yet underlying differences are significant. The resilience of world trade volumes was backed by recoveries in retail sales as consumers shifted consumption from services to goods like electronic devices, home and garden furnishings and outdoor sports articles.” All of these goods are shipped in containers, with many ordered online. Container freight rates have risen to their multi-year highs since early 2021, boosted by port congestion, high shipping volumes and the lack of available boxes. ING expects rates to ease over the course of the year but stresses that the downside is limited. “With increased volumes meeting delays and stretched supply chains due to congestion, container shortage and reduced air freight capacity, rates will remain high,” the bank said. “At the same time, capacity pressure is not over yet as sailing schedules are disrupted and the efficiency of the fleet lower.”

Charter rates for bulkers have recovered since mid-2020, partly driven by strong Chinese iron-ore demand. The Baltic Dry Index hit 2,105 points on Wednesday, the highest since September 2019. “As the main industrial regions worldwide return to growth, 2021 is expected to offer widespread recovery in dry bulk markets,” ING said.

Spot earnings in most tanker segments have been close to their multi-year lows in recent months due to severe tonnage oversupply. ING expects slow recovery in oil demand to continue plaguing tanker rates this year. “Trades of liquid fuels are suffering due to the pandemic, with road and air traffic still at low levels,” the bank said.

“Volumes are expected to pick up in 2021 but won’t return to pre-pandemic levels just yet. Given the forecast of relatively weak demand and gradual uptake in the second half of the year, tanker rates are expected to remain low for at least the first half of 2021.”

Forward freight agreement deals done in the past 24 hours point towards a very bullish outlook for the dry bulk sector throughout 2021. “Yesterday proved another day apt to change contact lenses,” quipped analysts from Lorentzen & Stemoco in a daily markets report today. “The figures in the FFA market are hard to believe at first glance, but they are true,” the report stated.

Capesize FFA prices for March moved up to $18,025 a day, but much more so for April to $22,809 a day as talks of firming C5 coincides with rumours of a newcastlemex for ultimo-April loading at $22,000 a day. May also moved up to $23,200 a day and June to $23,309 a day with Q3 at $24,209 a day and Q4 at $22,050 a day. Kamsarmax FFA prices rocketed yesterday, with March surging to $22,455 a day and April up by $2,432 a day to $26,414 a day and May up by $2,219 a day to $25,355 a day with June at $23,417 a day. Supramax FFA prices were also star performers with huge upswings leaving March at $22,450 a day, April at $23,486 a day, May at $21,743 a day and June at $19,364 a day, according to the Baltic Exchange.

The frenzied action yesterday was described by one London-based markets watcher as being akin to rabbits in the headlights. “The FFA market is taking 2021 in its stride, moving from strength to strength. After the record volumes we saw a few weeks ago, beating the 2008 record, the start of this week has been full of positive sentiment and good volume,” a spokesperson for the UK’s Freight Investor Services told Splash today, going on to describe the contango developing on the front months of the cape and panamax markets, suggesting that the market thinks that this squeeze on tonnage could continue for some time.

“This goes hand in hand with the bullishness we are seeing in commodities, with the prices of iron ore, coal, steel products, soybeans, corn, etc the highest they have been in years,” commented Ralph Leszczynski, global head of research at Banchero Costa. Iron ore, at over $160 per tonne, is double what it was 12 months ago, for example. “There is clearly bullishness in the air, as economies in Asia in particular are recovering and doing better than expected, and we are hopefully getting towards the end of the Covid crisis with the vaccine rollouts,” Leszczynski said.

A report from Breakwave Advisors this week predicted that demand growth for dry bulk shipping this year will total almost three times the growth in net new supply, and although utilisation is still well below the record high levels of the 2000s, directionally, utilisation is heading to “new multi-year highs” that have the potential to push shipping rates much higher.

The Baltic Dry Index has risen above the 2,000-point level for the first time in five months, signalling that sentiment in dry-bulk markets is riding high once again. The index rose by a further 34 points on Tuesday and was assessed at 2,017 points, which is the highest level seen since 7 October last year. Growth in the index has been steady since mid-February but has faltered over the past week, caused by a slight correction in the capesize bulker market. The BDI’s current level is also almost double what it has averaged over the past ten years. The index has averaged 1,171 points since this point in 2016 and just 1,115 points over the past decade.

Rising capesize spot rates helped fuel the BDI’s rise on Tuesday, as well as a big leap forward in the panamax market. Baltic Exchange panellists on Tuesday assessed the capesize 5TC benchmark, the weighted average of spot rates on five major routes, $220 higher than Monday at $17,274 per day. The upwards assessment came on the back of improving market conditions in the Atlantic and steady trading activity in both the Pacific and Brazilian markets. But the BDI’s rise was also aided by a $897 upwards assessment to the Baltic’s weighted-average panamax spot rate, which was assessed at $21,349 per day. The assessment could even rise further.

“Expectations of further rises to come as fresh demand not just from the Americas but from most load origins along with strong period interest lent support to this recent sentiment,” the Baltic Exchange noted in its daily market report on Tuesday. Panamaxes have fallen slightly from the 14-year high of $22,659 per day on 16 February, but have been trending slowly upwards again since March began.

Meanwhile, average supramax rates have been stuck at a plateau for almost a week now, according to Baltic Exchange assessments. Panellists assessed the supramax 10TC, the weighted average of spot rates on 10 key routes, at $22,865 per day on Tuesday, $44 lower than the previous day. “A story of two halves today with sentiment remaining strong in the Asian and Indian Ocean arenas by contrast much of the Atlantic saw negative movement,” the Baltic said in its report.

“Brokers saying that rates were dropping from key areas such as the US Gulf with limited fresh enquiry and the list of available tonnage increasing.”

The capesize 5TC assessment contributes 40% to the calculation of the BDI, while weighted-average spot rates for panamaxes and supramaxes each contribute 30%.

For January and February 2021, official Chinese figure for coal production of 617.6 MMT, is up 26.3% and 20.2% on the comparable months for 2020 and 2019. The rise in coal production is attributed to China’s strong electricity consumption, which for January and February 2021 posted an increase of 21.0% and 13.2% on 2020 and 2019. The growth for the first two months of 2021 versus 2019 implies a CAGR of 6.4%, just shy of the 8.4% CAGR in electricity consumption for the ten-year period from 2009-2019. This is very much an indication of a V-shaped recovery, as China has managed to offset the losses from Covid-19. Thermal electricity consumption retained its market share, by posting an increase of 20.3% and 11.4% on 2020 and 2019. For January and February 2021, Chinese steel production was reported at 175.0 MMT, up 13.1% on the comparable months of 2020 and 17.0% on 2019 – underlining the contribution from China’s stimulus program. The strong economic activity in China is behind the recent strength in dry bulk markets.

Capesize rates are USD16.8k/day, more than 3x YOY and 2x the 2019-level. Even more strikingly, the smaller vessel sizes – which typically witness less volatile earnings than the Capesizes – are seeing stellar earnings coining anticipations of a “super cycle”. YTD Panamax rates are USD15.6k/day (92% above last four years average for Q1), YTD Supramax rates are USD15.3k/day (85% above) and YTD Handysize rates are USD13.1k/day (99% above).

Dry bulk shipping’s capesize sector continues to rise amid China’s ongoing building boom, despite government plans to lower steel output for carbon-reduction goals. The capesize 5TC, a weighted average of spot rates on five key routes, on Monday gained 1.9% to $17,054 per day, maintaining its steady climb from $11,679 per day on 1 March.

Freight-forward agreement (FFA) rates for the asset class also improved on Monday and continue to show a strong forward curve for 2021, according to the Baltic Exchange. FFA rates improved 6.9% to $17,750 per day for March and 5.2% to $22,650 per day for July while also showing a steady ascent for the next several months. On a quarterly basis, they are up 9.7% to $22,197 per day for the second quarter and up 7.5% to $21,603 per day for the last three months of this year.

These market improvements come at a time when China’s iron-ore imports and production of steel keep growing with no signs of slowing down. China briefly closed some mills to lower air pollution in Tangshan, but January-February steel output grew 12.9% year-over-year to 175 MMT, according to the National Bureau of Statistics. Meanwhile, infrastructure investment jumped 36.6% alongside a 38.3% upswing in the real estate market over the same time frame.

Manufacturing also shot up through February by 37.3% following the lift of Covid-19 restrictions, NBS data showed. “Easing of travel and virus-related restrictions in China should help support economic growth in the near term,” Clarksons Platou Securities said in its daily capesize report.

“And with fiscal stimulus in other countries around the world, we expect dry bulk demand to remain well supported.”

Heavy rains at the end of January into February has delayed Brazil’s soybean harvest and disrupted logistics causing the worst congestion in Brazil’s grain ports for some  years. With virtually no beans exported in January and a mere 2.9 MMT in February (compared to 4.8 MMT in February 2020) , vessels have arrived with no cargo in the silos thus line-ups have grown rapidly such that 140 Panamax/Kamsarmax and 41 Handy/Supra/Ultramax are currently at anchor in Brazil’s 14 main grain loading ports.  Clearly the knock on effect of less available tonnage especially in the pacific (than is usual in Q1) is inflating rates and with a fall in new building deliveries (e.g. only two Kamsarmax came out of yards in February), lack of additional supply is likely to prolong the current strong sub cape market. However significant quantities of soybeans are now arriving at ports so we are likely to see a big bounce in monthly exports, perhaps as much as 15 MMT transported in March, which if confirmed would be an all-time monthly record.  Should terminals be able to achieve this throughput then we may be seeing congestion peaking at present levels, though with the Brazil soybean harvest forecast to be a record 133 MMT, overall shipments may exceed 2018’s record 83 MMT.

From Howe Robinson Research – 15 March 21

Thus far in March, benchmark Supramax spot rates have averaged USD21.3k/day and is up a staggering 178% from an average of USD7.7k/day in March 2020 – the strongest March since the inception of the BSI 58 in 2016 and at levels previously seen in 2010.

Mid-size bulk carriers are generally exposed to a wider variety of cargoes than Capesizes (e.g., agribulks, minor bulks, iron ore & coal) and we believe the recent uptick for mid-size bulkers is attributable to a broader set of factors, largely driven by re-opened economies, re-stocking, coal & agriculture demand.

USDA’s recent numbers suggest that 2.8 MMT of grains (corn, sorghum, soybeans & wheat) were inspected and/or weighed for exports in the week ending 3 March 2021 – up from 1.9 MMT in comparable week last year.

Moreover, as China’s import of Australian thermal coal has ebbed down to zero, other routes have taken hold, as seen by US increasing its Q4 2020 coal exports to China to 17.4 MMT, up 748% QOQ and 252% YOY.

More mid-size bulker demand could yet come, as China ramps up its imports of scrap metal after lifting the ban on the commodity in early 2021.

Albeit a moderate impact, China’s push towards a greener future, and less reliance on Australian coal, could be a positive for the mid-size bulk segment and a negative for the larger sizes.

US-listed dry bulk shares surged 61% in the first two months of this year, nearly doubling the 31% average gain for the 32 shipping stocks under coverage of investment bank Jefferies. But for investors who want to take advantage of shipping’s exposure to an emerging global recovery from the Covid-19 pandemic, what can they do? Has anyone who has not jumped on the dry bulk train already missed all the fun — and outsized profits? Is the surging sector still the place to be, or is it a smarter move to begin shifting bets into trades such as tankers, whose rates recovery is still months off in most estimates?

For Jefferies lead shipping analyst Randy Giveans, the dry bulk story is not over yet. Giveans told TradeWinds that he is most bullish about the bulker sector, behind only containerships. “Tanker equities have moved up much faster than asset values,” he said. “Dry bulk equities have rallied, but rates and asset values are still on the rise. Tanker rates will likely languish for at least a few more months. But for dry bulk, there’s plenty of room to move higher from here.”

Shipping stocks soared across the board in January and February. Of the 32 Jefferies stocks, 31 logged gains, with the average at 31.2%. This is against an increase of 2.3% for the S&P 500 and 11% for the small-cap Russell 2000 index. “It’s a clear outperformance by shipping,” Giveans said. Dry bulk nearly doubled the movement of any other operating sector. Containerships came next at 34%, followed by LNG at 25%. The tanker group’s gain of 20% was larger than only LPG carriers at 4%. But to Giveans’ point on valuations in the physical market, the tanker group is currently trading at an average 102% of net asset value (NAV), while the dry players are at 88% of NAV.

“To note, this strong equity performance has more than offset the increase in asset values. As a result, the current industry average price/NAV is 86% compared to just 75% at the beginning of the year,” Giveans said, referring to numbers across all sectors. “The biggest sector change has been in tankers, as asset values haven’t increased materially, but tanker equities have rebounded.” So, while at first glance the outsized jump in bulker stock prices might suggest the sector is overheated, the comparison to NAV hints otherwise — pointing that finger at tankers instead.

A look at individual companies over the two months confirms dry bulk’s dominance. Six of the top 10 gainers over the period are bulker owners, led by Greece’s Safe Bulkers at a 111.5% increase — the only triple-digit surge among the Jefferies group. Others in the top tier include Connecticut’s Eagle Bulk Shipping at 76.4%, Navios Maritime Partners at 59.7%, Genco Shipping & Trading at 54.3%, Star Bulk Carriers at 54% and Diana Shipping at 46.6%. By the same token, big tanker names dominate the bottom time, albeit with all registering gains. These include Nordic American Tankers and DHT Holdings at 9.2%, Euronav at 11.8%, International Seaways at 13.3%, Frontline at 13.8% and Tsakos Energy Navigation at 14.8%.

With earnings season now mostly done, Giveans sees few catalysts remaining in March before the quarter closes. “We do expect continued asset appreciation, but rates are likely to remain volatile in what is normally a seasonally soft spot of the year,” Giveans said. “Comparing time charter rates to spot rates, clearly the market is pricing in a significant improvement in tanker, LNG, and LPG rates, whereas dry bulk and containership numbers will likely remain strong, although slightly lower than these decade high levels.”

The first week of March allowed shipping to keep building on the two-month performance. The Jefferies stocks gained an average 1.8%, with 22 of 32 rising. Tanker shares managed to notch the best week with a 5% gain, despite the surprise news that Opec+ would essentially maintain previous levels of production cuts. Dry bulk continued upwards, with a 3% gain amid some of the highest spot rates in a decade. But containerships cooled off to a 4% loss — the worst of the group. LNG carriers dropped 2%, while LPG owners rose 1%.

A chorus of US analyst voices is singing an “amen” behind Jefferies’ view that dry bulk shares still have some room to run in 2021 despite appreciating more than 60% already this year. “It’s a good question. In our view the stocks are up significantly but off of what we would say is an extremely low level,” Clarksons Platou Securities analyst Omar Nokta said in a message on Monday.

He said that as a group, the bulker shares are trading around net asset value (NAV), based on prevailing secondhand value assessments, which puts them slightly above pre-pandemic levels. “Ship values remain between 25% and 60% below where they were in 2010 — the last time rates across the board were this strong,” Nokta said. “So we view the sector as still in the early innings.”

A similar take came from BTIG analyst Gregory Lewis, who noted his own bank’s enthusiastic client note on the sector in February. “We are bullish on dry bulk stocks even after this move higher,” Lewis said. “We think dry bulk stocks should continue to benefit from increasing commodity demand and the reflation trade in equities, and it helps that these stocks have largely been out of favour and underperformed for years.”

He added that BTIG is not “overly concerned” by the mere fact that bulker shares are up so much on a year-to-date basis. “Remember the Russell 2000 is up 55% to 60% over the last year also, and bulker stocks are still underperforming the broader market over, say, a three-year period,” Lewis said, referring to the popular index of small capitalisation stocks.

“I think you are asking more of a timing question — which is why we upgraded Euronav back in January — as a way to play eventual improving oil demand,” Lewis added, referring to the Belgian tanker owner that is a bellwether stock in the crude sector.

“That being said, we think dry bulk rates are strong in the near term while tanker rates should continue to bound around at current levels until we see Opec start to ramp production. So it’s still wait and see.”

Brazilian soy shipments this month should reach 15 million tons, which could establish a new record for a month, according to the maritime agency Cargonave, considering the 250 ships in the export line-up, a growth of more than 40% compared to the number seen in the same period last year.

If all this volume were shipped, Brazil could even surpass the export record set for a single month – around 14.85 million tons – registered in April 2020, as registered by government data. However the logistic challenges are great, especially in a rainy season like this year, which delays the loading of soy from the field to the ports, according to experts.

“Despite the delay in the harvest, there is already enough volume harvested to export 15 million tons, even more considering that the harvest should advance well in the coming weeks. The question is whether we will be able to transport all that soy to the ports. It will depend a lot on the climate. March started exceptionally rainy in several states, ”said analyst Daniele Siqueira, from AgRural consulting firm.

AgRural pointed out that until last week, the harvesting pace was the slowest in ten years, and the country had harvested a quarter of its harvest by February 25th. This had an impact on last month’s shipments, which fell about 40% compared to the same period in 2020, to almost 3 million tons, and thus the long queue of vessels awaiting for exports in March.

For Aedson Pereira, from IHS Markit, “leaving everything” on the schedule is “impossible”, due to the complications caused by the rains. Still, March should be at record levels, marking the beginning of the period in the year when shipments from the largest global soy producer and exporter become stronger. Expectations for the country’s total exports in the year exceed 80 million tons.

In March last year, Brazilian shipments reached an all-time high of 10.85 million tons. The port with the most ships scheduled for March is Santos, the main terminal for soy shipments from Brazil, with more than 70 ships scheduled, according to Cargonave data. In the same period last year, the expectation was 58 ships.

In Paranaguá (PR), there are 50 vessels, versus 32 that had been planned for the same month last year, according to Cargonave. The schedule of soy shipments is also intense in Itaqui, Maranhão, with 28 vessels, double the amount seen last year. In Barcarena, Pará, there are 30 ships scheduled for March, versus 19 in the same period last year. The port of São Francisco do Sul, in Santa Catarina, has almost twice the number of ships scheduled as the same time last year, totaling about 15.