“The dry bulk industry has enjoyed an unseasonably robust start to 2021. Average earnings in January were much higher than in recent years, because the usual seasonal slump in cargoes was delayed,” wrote Sand. “However, at the start of February, the capesize market saw average earnings fall steeply, from around $25,500 per day to just $12,057 per day on 8 February. After this, they seemed to turn a corner and rose to $15,856 per day on 17 February, still well below their break-even level,” he recalled.

After the strong start to the year, cargoes and tonne-mile demand fell in February, as the Chinese Lunar New Year lowered economic activity in China. Moreover, the Chinese government’s aim of moving towards a more consumer-driven economy could threaten the continuation of strong imports of dry bulk goods, which was aided by infrastructure and industry-supporting stimulus measures, Sand noted.

“Stimulus packages in the rest of the world have focused more on securing the demand side of the economy – policies that benefit container shipping more than dry bulk. With the crisis still continuing and governments still focused on supporting individual consumers, infrastructure-heavy stimulus projects in many countries still appear a long way off, with no guarantee that they will materialise, and therefore cannot be counted on to provide the fuel for a dry bulk recovery,” he said.

In terms of capacity supply, Bimco expects growth in the dry bulk fleet in 2021 to be the lowest for many years at around 2%, with some 27m dwt expected to hit the waters, around half of the 48.9m dwt delivered in 2020. Demolition, on the other hand, is expected at 9m dwt, down from 15m dwt last year.

“After an unusually strong start to the year, seasonality has caught up with the dry bulk market. Coupled with a slow recovery in global economic activity, it looks set to be another challenging year,” Sand said.

Supramax rates have sky rocketed by more than 40% in the last week, crossing the $20,000 a day mark for the first time in a decade while handysizes have recorded 31 consecutive days of improving rates.

Supramax rates on the Baltic Exchange have shown “magnificent” gains on all routes, Norwegian broker Fearnleys noted in a market update. Supramaxes are being tipped by many brokers to surpass panamax earnings today.

“Strong physical demand in both basins, though the feeling is toppish,” Fearnleys suggested, adding that ships in the Indian Ocean had been the biggest winners this week.

Another Norwegian brokerage, Lorentzen & Stemoco, reported today that the rise in the spot market for both supramaxes and ultramaxes comes as timecharter interest is building with period contracts being done. A nine-year-old 57,000 dwt supramax was taken on subs for four to six months at $17,500 a day.

Meanwhile, the handysize winning streak continues, rising for 31 trading days in a row. The Baltic’s handysize index broke records yesterday, jumping to over 1,000 points or a TCE of $18,316 per day, up by $713 a day, as more support came from the east coast of South America.

Firming spot rates have also seen a scramble for secondhand tonnage. February dry bulk spending is up an overwhelming $577m (+151%) compared to last year, according to data from VesselsValue, who noted in an email to Splash: “The cocktail of strong rates and high S&P activity has seen bulker values firm across the board.”

Plenty of indicators are flashing green. Are we at the start of a commodities bull-run, and by extension a boom for shipping? Splash Extra investigates

The United Nations defines a ‘supercycle’ as a decades-long, above-trend movement in a wide range of base material prices which follows from a demand shift.

In recent weeks three big banks – Citi, Goldman Sachs and JP Morgan – have put forward their positions that we’re at the start of another commodities supercycle.

According to Google Trends data, the interest in the term has been at its highest since the 2008-09 global financial crisis, which marked the the end of the last commodity supercycle.

Splash Extra research shows supercycle mentions in the media have shot up this month to their highest level for 12 years. Is it realistic, and like the last commodities boom will there be a concurrent shipping rally?

“That’s always worrying when the media catch on to something,” quips Tim Huxley, the chairman of Hong Kong-based Mandarin Shipping, a man who surfed the upside of the last supercycle with aplomb.

Huxley says it is a bit premature to get too excited about a supercycle as we still have so many uncertainties around, whether it be pandemics, trade wars, environmental issues or the underlying strength of the global economy.

“There are just as many people predicting recession as supercycles,” he warns.

Despite Huxley’s caution, observers of dry bulk rate patterns in February have had plenty of cause for optimism.

For instance, the derivative dry freight market recorded by London’s Freight Investor Services (FIS) posted a trade volume of $1bn notional value in the second week of February, the largest trading week of the 21st century, clearing over 75,000 lots across the cape, panamax and supramax vessel sizes.

John Banaszkiewicz, CEO of FIS, tells Splash Extra: “There is a lot of talk about supercycles with respect to commodities at the moment, and if the major economies emerge post-pandemic like China has done, this will only add fuel to the clickbait fire.”

There is no stable relationship between the absolute level of commodity prices and the level of freight rates

The continued growth of the number of participants in the derivatives market is significant, with it recently overtaking the physical seaborne trade dry freight volumes.

Supercycles of yore

Over the past 120 years, there have been four extended commodity price booms, according to Capital Economics. Each had a unique driving force — two from war recoveries, one due to the Opec shock and the last from China’s rapid industrialisation. Supercycle adherents believe a combination of rising industrial demand and lack of investment in mines and oil exploration will lead to a reflationary boom in the 2020s.

JP Morgan posited this month that the “roaring 20s” will be accompanied by easy monetary and fiscal policy, a weak US dollar, and stronger inflation, all supportive for commodity prices.

From China’s five-year plan to Europe’s Green Deal and Joe Biden’s economic stimulus plan, policymakers are looking to redistribute economic benefits, help the environment and create versatile and resilient supply chains, according to Goldman Sachs. The bank was the first big name to raise the prospect of a long-running bull streak for commodities at the end of last year.

Charles De Trenck, Citi’s Asia Pacific research head during the last supercycle, and now an independent analyst and investor, has been flagging up the commodities rebound longer than most, since at least last September when he first started to clock key indicators flash green.

“Underpinning all this have been global growth stimulation policies, as always,” De Trenck says, something he concedes is also extremely dangerous given we have been at this hyper stimulation stage for over a decade.

“If we get a good post-Covid recovery into 2022 we will be calling this a supercycle,” De Trenck says, adding: “If we get a recovery in the volatility of money we may be looking at an inflation supercycle where assets will help maintain relative value.”

Joakim Hannisdahl, head of research at Oslo-based Cleaves Securities, believes the current miners’ investment cycle supports dry bulk, a shipping segment that has had an extraordinary volatile February with spot and FFA rate graphs resembling the Dolomites.

“Looking at commodity prices, it sure should incentivise investments into future production increases,” Hannisdahl says.

Of note, BHP, Fortescue and Rio Tinto all paid record dividends to their shareholders last week, amid a very strong financial reporting period for most of the world’s leading miners.

Excitement rekindled

Khalid Hashim as managing director of Thailand’s Precious Shipping experienced the last supercycle. The last few frenzied weeks on the dry bulk markets has given him pause to reflect that market forces could be aligning for another bulk run.

“Personally, I have to go back to 2007/2008 to remember the excitement that we all felt when rates were then on a tear,” Hashim says. “You could call it what you want but supercycle certainly does seem to fit this bull market.”

Commodities and shipping have been underinvested in for the last decade for economic and environmental reasons

The cross-segment ClarkSea Index jumped by 23% last week to $18,164 per day, 50% above the ten year trend, amid fevered fixing of ships. Clarkson’s weighted index covers all ship types.

Also of note, Lorentzen & Stemoco Research last week made its first changes to its estimates for bulk carrier earnings for 2021 since August last year, pushing most segments up by between 40% to 50%, whereby the brokerage now believes capes will be earning $22,750 a day on average this year, calculated on a timecharter equivalent basis with kamsarmaxes projected to be earning $17,500 a day, supramaxes pocketing $15,000 a day and handysizes netting $14,000 per day.

“We believe that this will be a year of recovery, marked by a broad-based upturn in demand for dry bulk commodities with strong growth in China being joined by improved prospects also elsewhere, most notably in other-Asia but also in Europe. Newbuilding deliveries are expected to decline in growth to just over 30m dwt, while scrapping is forecasted to exceed 20m dwt, as high steel scrap prices will encourage demolition of ageing bulk carriers,” Lorentzen & Stemoco stated in a note to clients.

Charlie Du Cane, commercial director at Seastar Maritime, argues the key question dry bulk owners ought to be asking themselves right now is how much is the current spike in commodity prices driven by demand, and how much is it driven by constraints in supply, and is there a parallel process going on in shipping.

“As a handysize operator, it is fairly obvious that it is both – and what is going on in commodities is largely mirrored in shipping,” Du Cane believes.

Commodities and shipping have been underinvested in for the last decade for economic and environmental reasons.

“On the demand side there is strong growth in commodities, in part driven by the snap back effect of economies beginning to reopen and restock, but also by the global fiscal climate, which is lax without parallel in history,” Du Cane says.

The relationship between commodity prices and freight rates

It’s important not to get ahead of ourselves, argues Dr Roar Adland, shipping chair professor at Norwegian School of Economics. Rising commodity prices do not instantly translate into profits for shipping companies, he warns.

“There is no stable relationship between the absolute level of commodity prices and the level of freight rates,” Adland says, taking crude oil as a good example at the moment – oil prices are up strongly, while tanker rates are in the basement.

“The reason is that the oil price currently is driven mainly by financial inflows and OPEC cuts. So, when the commodity guys talk about a commodity supercycle, they mean higher commodity prices, which may indeed be the end result due to easy money and liquidity,” Adland explains. “That may or may not translate into strong freight markets – depending on fleet supply dynamics and realised demand for commodities.”

J Mintzmyer, lead researcher at Value Investor’s Edge, says he views the overall shipping industry as attractive for both a recovery investment and also as an inflation hedge.

Cyril Ducau, CEO of Singapore’s Eastern Pacific Shipping, says that with the global orderbook at historic lows it will not take much for rates to spike.

“This shift in the scales of supply and demand could benefit tonnage providers who have a young and dynamic fleet,” Ducau says.

The case for caution

Nick Ristic, who heads up dry bulk research at Braemar ACM Shipbroking, is a sceptic about the chances of prolonged shipping boom.

“This is just the cycle,” he says, arguing that we’re still dealing with the glut of supply from the last supercycle. The dry bulk fleet today is almost three times the size it was in 2004 by carrying capacity, he points out.

Dr Martin Stopford, the well known president of Clarkson Research Services, is also not buying into any shipping supercycle talk just yet. The veteran analyst who has been through more shipping cycles than most likes to look at how shipyard capacity tends to echo and amplify any seaborne supercycle, something that today’s yard output does not suggest we’re on track for a shipping boom.

“The idea of a shipping supercycle that will make us all rich sounds like speculative smokescreen to me,” Stopford tells Splash Extra. “We are in the trough and it could be a long slog. But money’s cheap and shipyards are emptying fast, so why not enjoy the ride with a little flutter on a new generation of high tech ships?”

Spot rates for handysize bulkers continue their upward swing with no signs of slowing down, having reached highs unseen in over a decade. The Baltic Handy Size Index (BHSI) came in at 978 points on Tuesday, up 220 points since 15 February and flirting with 1,000 points for the first time since hitting 988 points on 18 October 2018. The BHSI reached as high as 3,402 points on 23 May 2008 but then crashed to 299 points in less than six months as a result of the Great Recession that shook markets worldwide that year.

“We have been expecting a stronger market, but this is beyond our highest scenarios,” Njord Shipping chief executive Henrik Ness told TradeWinds. “We could be heading into the second-best market since the Viking Age.” The Viking Age took place during the Middle Ages from 793 to 1066 AD, when Norsemen known as Vikings undertook large-scale raiding, colonising, conquest and trading throughout Europe.

Norway-based Njord Shipping is the disponent owner of 12 handysize bulkers, five tankers and one containership. Ness said historically low orderbooks and Covid-19 should continue to sustain the handysize rally by limiting supply amid forecasts for greater demand and port infrastructure upgrades. “February normally being the weakest month of the year combined with Chinese New Year does not seem to calm charterers,” he said. “New environmental restrictions already from 2023 might lead to even less effective use of today’s tonnage leading to an even tighter situation for the existing fleet down the road.”

US president Joe Biden’s expected $1.9trn economic stimulus package and China’s fall of tonnage from the market due to the Lunar New Year are also pushing up handysize rates, said Adem Eskici, spokesman with New York-based broker Handysize Chartering Pool. Handysize owners also expect Biden’s easing of US-China tensions will boost trading of grains and other raw materials between the two nations, he said. “All these matters remind owners of 2008 market conditions and behaviors, so they are hiding tonnage positions till spot dates,” Eskici told TradeWinds. “In a few days, we have seen an increase in owners freight rates by more than 20 percent, and these conditions will keep at least till the end of the Chinese holiday.”

The remarkable rise in handysize rates has not been supported by a futures market that has been in backwardation for months and thus taken time-charter hedging off the table, Ness said. Freight-forward agreement rates for handysizes went up to $15,888 per day for March from $13,650 per day in February but then fell to $14,663 per day for April, $13,425 per day for May and $12,688 per day for June, according to the Baltic Exchange.

China’s insatiable demand for dry commodities and ban on Australian coal, however, should keep dry-bulk rates buoyant for some time, he said. Colder temperatures for this year’s winter should further support sector fundamentals, he said. “These are my current reflections, but still stunned over the last two weeks,” Ness said. “Will this increase top out?”

The word supercycle is appearing in global business titles on a daily basis in recent weeks and dry bulk shipping numbers are increasingly backing up this bullish commodities stance – the Baltic Dry Index rocketing up this week and FFA traders reporting extraordinary business.

The derivative dry freight market recorded by London’s Freight Investor Services (FIS) posted a trade volume of $1bn notional value last week in the largest trading week of the 21st century, clearing over 75,000 lots across the cape, panamax and supramax vessel sizes.

John Banaszkiewicz, CEO of FIS, said: “2020 may have been the year of equities, but 2021 is gearing itself up to be the year of commodities – and nowhere is that truer that in the freight market. Last week we saw a mammoth 75,000 lots traded on freight, eclipsing the last dry shipping cycle boom in 2008.”

Current volumes year to date on average are double where they were in 2020, with the cape market trading up 61%, panamax up 126% and supramax up 99%. This increase has also extended to option trading which year to date versus 2020 up over 100%.

Banaszkiewicz added: “Dry shipping is one of the main indicators of a boom in commodities that has seen front month future iron ore 62% Fe rise to $162.80 to China, thermal coal to $65.55 and US Nola Urea to $335.”

With the surge in commodity prices, many companies have been caught short on the rally, and therefore this has pushed volumes up in a short squeeze, especially in the panamax market.

Norwegian broker Fearnleys also had the supercycle vibe going on in its latest weekly report. “You might remember 2008, and this week has really given us the same feeling,” Fearnleys said of the red-hot panamax market.

On kamsarmaxes, rival Norwegian broker Lorentzen & Stemoco noted in an update today: “A stellar market it is, with freight rates going from highs to highs.”

Fearnleys also discussed the “tremendous recovery” seen in the cape market over the past week where the two main routes with iron ore from Brazil and Australia to China are up by 23% and 46%, and the total time charter basket of all routes is up by 48%. “This is backed by a very firm Panamax market and an increasingly strong belief amongst market participants in the Dry Bulk segment,” Fearnleys stated.

Strong fundamentals and systemic underinvestment in the dry bulk market has laid the foundation for one of the best decades for shipping in a very long time, according to Joakim Hannisdahl, head of research at Cleaves Securities.

Speaking on a webinar, Mr Hannisdahl pointed to robust Chinese demand for coal and agriproducts, backed up by strong support from Brazilian iron ore and new trades created by Beijing’s ban on Australian coal imports.

“The capesize market is usually sluggish until September or October but this is a year of post-coronavirus recovery, so all bets are off,” he said.

Looking beyond the end of the year, Mr Hannisdahl identified the very low orderbook for dry bulk ships as a “gamechanger. The dry bulk orderbook now stands at 6% of the fleet on the water, equating to net fleet growth of 1-3% per annum. This is the lowest orderbook on record (since the mid-1990s),” he said. “We need very little demand growth to propel fleet utilisation into very good territory.” Demand for dry bulk capacity is forecast to grow by 7% in 2021, with modest growth anticipated for 2022 and 2023, but even so it will still be enough to outpace fleet growth.

This will lead to improved fleet utilisation, which feeds through to higher asset prices. He said vessel prices have already risen by 12% in the past few months. “We can expect an increase of 30% over next year, and 50% over next two years,” Cleaves’ forecasts suggest. Mr Hannisdahl said that despite a 20-year period of fleet growth, there had been little serious investment in any of the major sectors of shipping, which explained the low orderbook and the positive sentiment.

The opportunities this has created has not be lost on investors, he suggested. He argued that there is “a large capital influx coming into dry bulk at the moment”, encouraged not only by “fantastic fundamentals” but also by “generalist money trying to do the post-coronavirus commodity play”.

When external finance moves into a small sector such as shipping, he cautioned, there is likely to be big movements in price and turnover. “This feels a lot like early 2007,” Mr Hannisdahl said. “We expect 30% upside in asset prices.”

And then there were tankers for Castor Maritime. The Cyprus-based owner of dry bulk carriers has ventured into the wet trade with the acquisition of two charter-laden aframax LR2 tankers, sending its legions of online amateur investors into new fits of enthusiasm. The sale price was $27.2m.

Castor shares were up 40% Thursday to $1.66 as investors traded 366m shares before lunch in New York. Castor already had been one of the fastest-growing players in the dry bulk market, although from a modest base. The Petros Panagiotidis-led shipowner has tripled its fleet of bulkers to nine since last summer, largely on the strength of selling massive numbers of shares at well below $1.

Castor in January caught the attention of retail investors active on internet message boards like Reddit. It was one of the stocks initially restricted in trading by platforms like Robinhood as investors sought to pump up stocks heavily shorted by hedge funds. The activity has helped push Castor from $0.18 per share to today’s highs.

Castor did not identify the vessels it has purchased, but said they are 2005-built Korean tankers. The pair come with charters extending about one year, with a guaranteed floor of $15,000 per day and a 50-50 profit share over the base. Charterers have an option to extend employment for a further year.

“As we have communicated previously, we are a company that aims to take advantage of attractive opportunities presented to us, as the shipping cycles evolve. Therefore, we are very excited to be entering the tanker market, at what we believe is an opportune time for this sector,” Panagiotidis said in a statement Thursday.

Any short-term weakness in the tanker market is offset by the charter terms, with a potential upside in market recovery, he said. “In addition, we believe that the diversification of our fleet across the dry bulk and tanker sector provides us with a natural hedge against the cyclicality of the shipping industry. With significant capital on hand, we are actively continuing to look for further opportunities to diversify and grow our fleet with the addition of high quality tonnage,” Panagiotidis said.

Shipbroker Galbraiths forecasts that upcoming efficiency and emissions standards for existing ships will likely have an impact on the supply of tonnage in the tanker and bulker markets. The pressure on supply is likely to result from lower average operating speeds and possibly increased demolition as the result of the Energy Efficiency Existing Ship Index (EEXI).

Under the new International Maritime Organization standards, vessels will have to comply with new efficiency and emissions standards that are around a 15% to 20% improvement on historic standards set out in a 2008 baseline. The new regulation will likely be enforced from 2023.

In a new report looking into the potential impact, Galbraiths estimates that only around 28% of tonnage in the MR to VLCC size ranges of the tanker market complies with the required EEXI standard. Under the regulation, non-compliant vessels will have to make improvements to continue to trade. However, there are wide variations within tanker types. Because of the comparatively young age of the MR tanker fleet, Galbraiths said there is a high proportion of vessels in compliance compared to the older suezmax fleet.

It is a similar picture in the dry bulk markets, where most older vessels will be required to improve efficiency and emissions performance. Around two-thirds of the tanker and bulker market is expected to be impacted by the regulation.

“Amongst older vessels, and even those vessels only around 10 years of age, a significant majority do not currently appear to be operating at the required levels of carbon intensity that will be required under EEXI,” Galbraiths said. The options left for shipowners to improve their EEXI rating include power limitation, which will also restrict the speed of vessels, adoption of energy-saving devices and using alternative low-carbon fuels.

In effect, lower speeds would reduce tonnage supply capacity while it could also encourage the operators of older tonnage to consider scrapping their vessels earlier than planned. “It is therefore likely that vessel supply will be squeezed by vessels’ average speed reducing with vessels fitting engine power limit devices, an increase in dry docking and, for older tonnage, an increased incentive to scrap and for owners to look at fleet renewal,” Galbriaths said.

China would appear to be holding firm on its ban on Australian coal, with ships now being diverted to other Asian ports in Vietnam, India, South Korea, Malaysia and Thailand to unload. This comes three weeks after reports that the world’s largest importer of Australian coal was considering the acceptance of some cargoes, amid fuel shortages and port congestion. Statistics from dry bulk intelligence provider Oceanbolt indicate that Beijing has not imported a single nugget since early January. Its data reveals that 60 dry bulk vessels, from kamsarmaxes to capesizes, have been waiting off China since as early as late May to as recently as 2 February, laden with more than 6m tonnes of Australian coal. That represents 2% of volumes imported from Australia in 2019.

Seanergy Maritime Holdings’ 179,000-dwt bulker Knightship (built 2010) has been waiting with a full load of Australian coal at China’s Bohai Bay since early June last year. It sailed to South Korea in early January for a crew change but then returned to await a discharge date. “From what we know in the whole Bohai Bay, there are no prospects for Australian coal discharging operations,” he said.

China enacted an unofficial ban on Australian coal on 6 November — after stopping or reducing imports on many commodities from the country in early 2019 — and then made it official on 14 December. Beijing’s move came after Australia barred Huawei Technologies from building its 5G network in 2018. Oceanbolt’s findings show 18 ships discharged in China as Beijing sought to stem Australian coal imports: three ships unloaded before the 6 November ban, 12 between then and the official ban in December and three after that. The last vessel offloaded on 7 January.

The findings also reveal that 21 coal-laden ships have left China’s shores as of 2 February after waiting anywhere between two days and seven months for ports in Vietnam, India, South Korea, Malaysia, Thailand and elsewhere in the region. Those diverted vessels have a total tonnage of 2.72m dwt, carried by nine capesizes and a dozen bulkers within the panamax and post-panamax asset classes.

According to John Kartsonas, founder of Breakwave Advisors, Beijing is under little real pressure to lift the ban going forward. He said China would likely diversify its coal supply, adding that the fuel is plentiful and would only become more abundant as Western nations use less. “China will not have a problem finding coal,” he told TradeWinds, adding that China, which imports only 8% of its coal, always has laden ships waiting off its shores for crew changes and payment from buyers. “Some is Australia related but not all,” he said.

China’s ban on Australian coal is actually good for the dry bulk shipping market because it results in higher rates due to tighter supply, he said, but there remains uncertainty over Beijing’s next move. “Unfortunately it is a guessing game,” he said.

Jefferies analyst Randy Giveans told TradeWinds: “Variables include the amount of inventories on hand, the amount of coal coming from sources other than Australia, and demand for heating, power plant usage, and steel production. One could imagine the demand side remains very high, so the big unknown is the supply side.”