Although Cleaves Securities has had to lower target prices across all dry bulk stocks because of a weaker demand outlook, it sees upside potential mainly due to limited growth in supply. “Although the demand side of the equation has contracted due mainly to weakened Chinese demand, the supply side dynamics are looking extremely favorable going forward,” the Oslo-based investment bank said in a report. It thus has a buy rating on the segment. Top picks are US-based Genco Shipping & Trading, along with Norway’s 2020 Bulkers and Himalaya Shipping, with upside potential ranging between 92%-103% on the target prices.

Cleaves expects market conditions to improve following a softer rates period in recent weeks as Brazil’s increase in exports of iron ore will drive up fleet utilization. It forecasts dry bulk trade to fall by 0.5% this year, measured in tonnes, but because of the war in Ukraine creating a shift in trade patterns, it envisages tonne-miles to grow by 0.9% versus 2021. Iron ore has dropped by 1.3% so far in 2022, but is expected to rebound next year, with growth of 3.4%, while coal is estimated to see growth of 1.3% in 2023 from a drop of 0.3% this year compared with the same time last year. While grains are forecast to rise by 4.6% in 2023 after a contraction of 3.2% in 2022, minor bulks could have further growth of 2.2% next year from a gain of 0.6%. Overall, dry bulk tonne-mile demand growth is expected at 2.9% next year.

Despite weak demand in China, owing to coronavirus-related lockdowns curbing industrial output along with a slowing real estate sector, Cleaves is not modelling a recession, but rather a normalization of activity. As China’s steel output has lagged last year’s numbers, steel mills have substituted high-iron content ore from Brazil and South Africa with lower quality domestic product to keep profitable, according to Cleaves. Thus, key commodity imports have dropped, resulting in an unwinding of congestion at ports, it said.

The orderbook-to-fleet ratio is meanwhile at the lowest level on record, and 62% of the fleet will be 10 years or older by the end of 2023, Cleaves estimates show.

Meanwhile, shipyards are full until about 2025 and the new efficiency regulations will lead to higher scrapping from 2023. Cleaves also expects the hierarchy between vessel sizes to normalize with capesize demand increasing through the current cycle. That supports a 73% rise in its dry bulk share index. But asset prices are expected to see a downward correction in the near-term given the weak freight rate environment.

Cargo owners’ expectations will drive shipping’s decarbonization, according to industry opinion. Michael Parker, global head of shipping, logistics, and offshore at Citi, said the pace of the industry’s transition to greener fuels was no longer governed by the ship but by the cargo, and by the emissions created by the cargo when it was moved. The financial sector would be looking for certainty of cashflow, he said. “We’re not going to do decarbonization speculatively, like people love to do in shipping. This will be long-term and investible. It must be safe technically and reasonably safe financially, there clearly must be some risk.”

Speaking on the DNV Maritime Forecast to 2050 panel, he said that although the shipowner would retain an important role, that was only because the cargo owners were going to choose what ships they put their cargo on, and finance would choose what to finance by virtue of emissions, Scope III being the key one. Sveinung Oftedal, specialist director at the Norwegian Ministry of Climate and the Environment, said the industry was about to experience intense competition for energy, finance and the best minds. “With decarbonization, the shipping industry has placed itself where it can win that competition. I think the success of decarbonization in shipping relies on that factor.”

The panel noted that decarbonization would likely change the profile of the industry as consolidation brought together smaller and medium-sized players. “There is no God-given right to be a shipowner, whatever size you are,” said Mr Parker. “Many small shipping companies were big shipping companies at some point.” He believed the size issue was related to the huge amount of capital that would be needed to finance decarbonization, which will come from major companies and through governments. “There will be risks in this, and the financial sector will look for a return, and I’m afraid it’s not going to get a return from smaller shipowners, the economics won’t work.” The financiers would be concerned by Scope III emissions related to the cargo and where the cargo goes. “That’s what we will be measuring.”

The transition to new fuels would lead to a lot more consolidation, said Mr Parker, because of the scale of net zero and the new technologies required. Hapag-Lloyd chief executive Rolf Habben Jansen said there would still be a place for smaller players, even in the container shipping sector, if they were innovative and focused on a particular niche. “In the deep-sea market, I think it will be difficult for smaller players to survive if they want a global footprint,” he warned. Mr Oftedal said further regulations were needed to frame the decarbonization of shipping. “We need to invest in human capital, so the smartest minds concentrate on decarbonization and give them opportunity to do technology testing of new solutions. You also need access to finance and energy. Further regulations will be needed but the impetus must come from the industry itself.”

DNV Maritime president Knut Ørbeck-Nilssen said that six annual forecasts had shown that the real challenge was not around the shipboard technologies. These were likely to be available within three to eight years, depending on the type of fuel and segment, he said. The real challenge, he said, was availability of carbon neutral fuels, its distribution, and its availability in ports around the world. “That leaves me with one strong conclusion, maritime cannot resolve this issue alone. We will have to reach out to other industries, policy makers, and authorities in different geographies to get this going,” he said, adding production of carbon neutral fuels would take a great deal of investment. “Investment onboard will have to be taken by ship owners; investment onshore to produce the green energy cannot be made by maritime community. Shipping cannot decarbonize alone, it must be a team effort, and we must collaborate strongly across industries.”

The prospects of dry bulk rates in the short to medium term are cause for optimism, with fleet supply ultimately lower than demand growth expectations, according to BIMCO. While fleet growth is expected at 2.7% this year, and 2.2% in 2023, capacity supply is expected to only grow by 1% for the rest of 2022 and by 0%-1% in 2023. That is due to lower speeds related to new efficiency regulations that come into effect from January 1, said Niels Rasmussen, chief shipping analyst at the world’s largest shipping association. He expects the Carbon Intensity Indicator and the Energy Efficiency for Existing Ships Index to cut supply by 2%-3%. New vessel contracting has reached the lowest level since 2016, with the orderbook at 7.5% of the fleet, while demolition is expected to pick up as owners find their vintage tonnage will no longer be competitive, he said.

Tonne-mile demand growth meanwhile is estimated in the range of 1%-2% this year, and 2%-3% for 2023, he told an outlook webinar, even as volume growth has been reduced due to growing global economic concerns. “Overall, we expect that demand will grow faster than capacity supply and improve market conditions.”

Year-to-date bulk volumes have increased by 1.9% compared with the year-earlier period, with minor bulks continuing to lead the way. While iron ore volumes have disappointed, dropping by 0.5%, grains trades have so far slumped 3% given Russia’s invasion of Ukraine in February, said Mr Rasmussen. He added that although grain shipments have started from Ukraine thanks to the safe corridor, they are unlikely to reach pre-invasion levels, with overall grains trades expected to see growth of 2.3% based on strong wheat harvests from Russia and Canada.

The European Union’s ban on Russian coal has boosted average hauls, with imports rising by 20%, while helping to support spot freight rates. Alternative supplies have mostly been sourced from South Africa, Colombia, the US, and Australia.

China’s economic growth is at its lowest since 1990, with bulk imports sliding by 5.5% in the year to date, he said, adding that stimulus measures by the government should see a recovery in iron ore demand later in the year. However, BIMCO expects a global contraction in steel demand for 2022 as key economies face weaker production, apart from India which is reporting stronger growth. “Compared to our last update, the global economy is facing stronger headwinds, and slower growth in China is of particular concern,” Mr Rasmussen said. “The risk of a global recession has increased as central banks combat high inflation rates through a combination of increased interest rates and a reduction in fiscal stimulus.”

US investment giant BlackRock has become the second biggest shareholder in John Fredriksen’s bulker company Golden Ocean Group. A filing to the Oslo Stock Exchange reveals the New York group has passed the 5% threshold on 5.07%, a slice worth $93m. Golden Ocean’s shares closed more than +2% at $9.20 in New York on Monday. They were trading at $16 in June.

BlackRock is the world’s largest asset manager, with $10 trillion in assets under management. The shareholding places it behind only Fredriksen himself, who controls 39% of the company. Norwegian state pension fund Folketrygdfondet has a 3.79% slice and investment bank Goldman Sachs has 3.37%.

Both BlackRock and Golden Ocean have been contacted for comment.

The investment comes at a time when bulker markets have been cooling. Fearnley Securities said capesize rates continue to be depressed but improved 12% on Monday to $6,300 per day. BlackRock is no stranger to shipping investments. The manager has a 2.67% stake in Fredriksen’s tanker company Frontline and 7.1% in US-listed bulker operator Genco Shipping & Trading.

And last year, BlackRock strengthened its position as one of UK shipbroker Clarksons’ biggest shareholders. According to a regulatory filing, the New York-based company increased its stake to 5.38% in the London-listed group on 30 November.

In July 2021, BlackRock had significantly reduced its stake in Irish product tanker owner Ardmore Shipping. The company sold nearly 1.7m shares, according to regulatory filings, whittling down its position from 2.2m shares to 495,717. According to Ardmore’s annual report, Blackrock was the company’s second-largest shareholder, with 6.6% of all shares and behind Aristotle Capital Boston’s 3.6m shares.

BlackRock also partnered Greek LNG carrier owner GasLog last year to take the company private. The Peter Livanos-backed shipping company closed a deal with BlackRock’s Global Energy & Power Infrastructure Fund that saw GasLog delisted in New York.

Major US institutional player Fidelity Investments has slashed its holding in New York-listed Genco Shipping & Trading and Star Bulk Carriers in what could signal reduced enthusiasm for the future of the dry bulk sector. The Boston-based investor now holds 1.2m shares, or 2.8%, in Genco, according to a securities filing. That is well down from a peak of 6.3m, or just under 15%, reached in February. That apex had made Fidelity the largest holder in John Wobensmith-led Genco when combined with the gradual sell-down by core private equity backer Centerbridge Partners.

Fidelity built its position in both Genco and the dry sector throughout 2021 during a period of record earnings for the trade. But filings with US securities regulators show that the positions have been in retreat following the first quarter of 2022. Fidelity made its first major reduction in Manhattan-based Genco in May 2022 — about the peak of the recent dry bulk bull run. It was down to 3.9m shares or a 9.3% stake as of a filing 10 May. Then on 29 June, Fidelity cut the holding to 2.5m shares or a 5.9% stake. That reduction placed Fidelity behind both Centerbridge 4.6m shares, or a 10.8% stake, and Blackrock with 3m shares, or 7.1%.

Fidelity’s other major dry bulk holding has been Greece-based Star Bulk, the largest shipowner in the sector with a fleet of 128. TradeWinds reported in August 2021 that the giant long-long investor had accumulated a 10% position in Star with shares worth over $200m at the time. That holding fell to 6.1m shares or just over 6% with a filing in February 2022. Petros Pappas-led Star has not updated the Fidelity holding in its own filings, but Fidelity’s last reported position was 1.5m shares or 1.5% on 30 March, according to Yahoo Finance.

Shares of Genco were trading around $14.30 on Monday, down about 11% year to date after reaching a high near $27 in June.

Star Bulk was trading near $20.75, down about 8.4% on the year after reaching a trading high of just under $34 in May.

Both companies’ fleets include capesize bulkers, which have been hit hardest by the slump in freight rates in recent months.

Kicking off a new monthly shipping investment column today, Edward Finley-Richardson considers how to play a possible bounce in dry bulk freight rates. CNBC host Jim Cramer ends his daily show, Mad Money, with a signature saying: “There’s always a bull market somewhere”.

One of the unique pleasures of being a shipping investor, especially since February 2020, has been to figure out how to deploy capital in an environment in which there always seems to be one shipping sector in a raging bull market. But it’s not as easy as it might seem from studying the stock charts in retrospect: the enthusiasm which coincides with the apex of a rising trend is also usually the sign that it’s time to start deploying money elsewhere. The past three months have been a humbling experience for many shipping investors. Just as dry bulk stocks seemed invincible, daily freight rates halved in a matter of months. Many of the most vocal bulls among analysts, shipping executives, and shipping investors failed to foresee the dip at all. Typically, those least experienced have been left holding the bag, with stocks 30-50% lower.

A different trend has taken shape in the oil tanker segment: after mild corrections in June, probably the result of a broader sell-off in oil and energy-related names, the vast majority have regained momentum and made new 52-week highs. The Russian invasion of Ukraine has had an outsized impact on vessel classes which transport Russian crude, such as aframaxes and suezmaxes. But the real bull market has emerged in the clean petroleum product transport, as voyage distances have lengthened to take advantage of crack spread differentials, which have varied wildly in different geographies. Companies which just six months ago had liquidity concerns, such as Scorpio Tankers, have made progress in shoring up their balance sheets, and are even inferring that shareholder returns may be on the table if rates continue at these levels. But while tankers have seen analysts, one after another, hail a continued rates bonanza leading into Q4 and Q1, usually the strongest quarters of the year, some astute observers have been eyeing the dry bulk sector, with a view to getting back in. The supply-side picture remains historically strong, as shipowners have by and large remained disciplined and chosen to repair balance sheets instead of ordering more vessels. This means that although the demand side has taken a hit due to Chinese economic woes, the dry bulk party seems destined to resume when demand fundamentals improve.

What is especially intriguing about the current dry bulk set-up is that freight rates for capesizes seem like they could be close to bottoming. They certainly can’t get much lower, as they are already unprofitable for most owners. The $BDRY ETF, composed of a ‘special sauce’ of dry bulk forward freight agreement derivatives, has risen from $4 to $42, and now back just below $9. Some investors have noticed that while dry FFAs, often considered a bellwether for future freight rates, have plummeted, the stocks have remained comparatively resilient. As access to dry bulk derivatives is limited, the BDRY ETF is the only way for most investors to speculate on the probability that rates will rise from here. The stocks, on the other hand, are at levels which do not offer sufficient margin of safety. They “should have” fallen further considering the weakness in freight rates, and the uncertainty regarding China’s economy, which is a red flag for commodities demand. The divergence between dry derivatives and the stocks does not usually last long. Therefore, I suggest going long the BDRY ETF; if you are looking for downside protection, you can buy puts on some of the most liquid dry bulk names. If rates follow usual seasonal strength, the puts will go to zero, but the BDRY should easily double. If the BDRY ETF falls further, it will be dead money until the next freight rates rally, but the puts on the stocks will do well and the inherent leverage will make for an attractive short-term gain. So, for those who are holding winning long tanker positions, let them ride. But as you do, follow the advice of famed Canadian hockey player Wayne Gretzky who said to skate to where the puck is going. Or as surfers like to say, “See you on the next wave!”

Cash buyers have bought a pair of capesizes, doubling the number of such vessels heading for demolition since last month, brokers report. According to Clarksons, Greece’s Golden Union is shedding the 171,400-dwt CIC Pride (built 2002) on an “as is” basis in Singapore at an undisclosed price. At the same time, Winning Shipping is believed to be divesting the somewhat older 172,600-dwt Winning Integrity (built 2000), “as is” in Singapore again, at $602.5 per ldt, or $12.78m in total. Underwhelming earnings for big bulkers have increased owners’ incentives to part with their capesizes.

Greek players have led the way, with Golden Union having reportedly sold another capesize in mid-August, the 171,500-dwt Captain Veniamis (built 2001), which is also its oldest ship, for about $550 per ldt. Chartworld Shipping, another Athens-based company, was earlier in September said to be scrapping the 174,100-dwt Star Tianjin (built 2004) for $600 per ldt, including bunkers. Uncertainties about the future course of the bulker freight markets, however, have caused some doubts as to whether the vessels’ cash buyers will send the ships for demolition. According to Clarksons, “it remains to be seen whether they do arrive at a recycling destination in due course or if indeed the cash buyers attempt to trade them further”.

Of the four capesizes named above, only the Star Tianjin is heading towards India. The Captain Veniamis is ballasting at Taboneo anchorage in Indonesia. Managers at Golden Union did not immediately respond to a query as to whether they have sold the CIC Pride for demolition.

Contacted by TradeWinds, an executive at Winning Shipping said he had not been told of any scrap sale of the Winning Integrity, the company’s second-oldest ship which vessel trackers show to be underway laden in the Eastern China Sea. However, a sale of the Winning Integrity at $602 per ldt would confirm price levels are heading north, as the demolition market thaws.

According to Clarksons, 2.4m dwt of capesize tonnage has been sold for scrap since 1 January. It is the first time this year that the pace of capesize demolition has exceeded last year’s levels, up 1% year on year. Overall bulker demolition, however, is still below 2021 levels. It currently stands at 3m dwt since 1 January, down 16% year on year.

The surprising article in the Wall Street Journal dated 11 September openly discussed the deindustrialization of EU due to the sudden shock of extortion-priced gas/fuel supplies due to the Russia-Ukraine war shutting of cheap Russian gas/fuel supplies to the EU. What is shocking is that the EU still blindly follows the lead of the Americans/NATO/UK without looking at the disastrous consequences to its economy and its people.

This article clearly spells out that if this war continues, the winners will be USA, China, and the ROW, supplying EU with gas/fuel at very high prices, manufactured goods, and metals. Net result, a deindustrialized EU in a deep recession, massive unemployment, closure of every conceivable form of industry, and dependence on others, just not on Russian oil and gas.

And for what? A war being fought by proxy in Ukraine that has been armed, supplied, and goaded by the military industrial complex, solely for its own profit, with the utter destruction of Ukraine and a complete disregard for all that is of value in the EU.

Of course, this is good news for shipping, both dry bulk and tankers/gas carriers, as they will benefit from this disruption/deindustrialization of the EU that will end up increasing ton-mile demand.

28 vessels totaling 2.1 MDWT delivered in August comprising 2 Capesize, 2 Post Panamax, 7 Panamax/Kamsarmax , 13 Supra/Ultramax and 4 Handysize; to date there has been 20.2 MDWT. On the flip side only 2 vessels (one Panamax and one Handysize) were scrapped in August making a total 18 (2 MDWT) for the year so far. Though we have very little demolition we expect deliveries to be relatively modest for the balance of 2022 so our forecast for net fleet growth this year continues to be around 25 MDWT.

The nominal orderbook for 2022 stood at 35.6 MDWT in January and with perhaps 6 MDWT slippage into 2023, next years orderbook looks similar in DWT to 2022. Looking at the different sectors, in the largest sizes whilst there are no longer any VLOC’s on the orderbook, there are a similar number (51) Capesizes and Post Panamax (32) to this year but in the Panamax (at over 100) there are around 20 more vessels on the 2023 orderbook. In the Supra-Ultramax (97) and Handysize (75) by contrast there are less deliveries expected in 2023 than 2022. Overall, the forward orderbook (67.2 MDWT) is dominated by Chinese shipyards in all sectors except for Handysize where Japanese yards still hold sway.

Tor Olav Troim-backed 2020 Bulkers has logged a big reduction in earnings for its newcastlemax fleet during August. The Oslo-listed company has reduced its monthly investor payout as a result. In August, the shipowner achieved average time charter equivalent (TCE) earnings of $21,800 per day. This compares to $32,500 per day in July. The six ships on index-linked time charters earned $16,700 per day, down from $30,600 the month before. There were average daily scrubber benefits worth $4,000 per day as part of the August figure, compared to $4,100 a month earlier.

The company’s two vessels trading on fixed-rate time charters earned $37,000 per day, versus $38,100 in July, including average daily scrubber benefits of $5,300 per day, down from $6,400. The Baltic 5TC Capesize Index averaged $9,339 per day during August, down from $20,173 during July.

The owner will pay a dividend of $0.06 per share for August, compared to $0.18 for the month before. Fearnley Securities said August’s numbers represented “quite solid rates”. “Capesize rates have however tumbled as of late,” analysts Oystein Vaagen, Erik Gabriel Hovi and Ulrik Mannhart added. FFAs are even more negative than the 5TC index, they pointed out. “The September contract currently quotes at $7,600 per day,” the analysts said.

Six of the company’s bulkers are on charter to Koch Logistics and the other two are contracted to Glencore. 2020 Bulkers brought in a new revenue stream in October 2021, when it signed a contract to provide sister company Himalaya Shipping with technical management of its LNG-fueled newcastlemaxes, which are being built in China.