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Cautious dry bulk shipping market with a strong long-term outlook

The IMF’s April 2023 World Economic Outlook presents their GDP growth presents for most countries in the world for the next five years. Baseline is that global growth will fall from 3.4% in 2022 to 2.8% in 2023 and regain slightly to 3.0% in 2024. The advanced economies will fare worst in 2023 with a fall from 2.7% in 2022 to a meagre 0.3% in 2023, with the Euro area and the UK having the lowest growth. Global inflation in the baseline is forecast to fall from 8.7% percent in 2022 to 7.0% in 2023, mostly due to lower commodity prices. The IMF underscores that if the financial sector gets more stressed, global growth may decline even further in 2023, to 2.5%, with advanced economies coming in at below 1.0%.

Positive for the baseline forecast is that China seemingly has rebounded strongly when it opened its economy after the latest Covid lockdown. Global supply-chain disruptions are almost gone, and the global energy and food markets have sorted themselves out after the initial severe problems that arose from the invasion of Ukraine by Russia. The massive and synchronous tightening of monetary policy by most central banks should according to the IMF be effective, with inflation moving back towards its targets. Many of the emerging markets and developing economies are already powering ahead. The most negative factor of growth right now looks to be inflation.

The GDP forecast indicates that the global growth could trend wise be slowing down slightly due to lower growth in China, since China’s share of global GDP is significant.

Global coal trades rose 20% in 1Q 23, with exports increasing from Indonesia and Australia. The gains continued in April. Thermal coal dominated the trades, with Europe, China and India driving imports. Banchero Costa stated that seaborne coal imports into mainland China were up 100% in January to March to 80M tonnes versus the same period last year, while volumes into India increased by 15% to 48M tonnes.

After the Russian invasion of Ukraine Europe has grown to be the fifth-largest importer of coal behind China, India, Japan and South Korea.

Iron ore rose too in 1Q 23 but by a more modest 4% as demand increased from infrastructure and property construction in China. Australia and Brazil were the exporting countries that increased output the most. Chinese steel exports increased in 1Q 23, but steel production is predicted to remain flat in 2023 due to stricter environmental requirements to reduce pollution in some of the major Chinese steel production hubs.

Global grain trade was down 10% in 1Q 23 versus 1Q 22 due to the war in Ukraine and bad weather in Brazil. However, Brazil expects to set a record grain harvest in 2023 and that should give a better 2Q 23. China is the largest importer and thus will tonne-mile demand be boosted.

China’s importance for the dry bulk market is clear, especially for large ships. China imports ¾ of all iron ore traded internationally and is also the largest shipbuilder of dry bulkers. Forty-five percent of the ship capacity delivered since 2000 was from China. In the recent five years that figure has been 60%. Chinese owners also own and operate most ships ahead of Greek and Japanese operators.

Fluctuating commodity prices impact the demand for dry bulk shipping services quite seriously. Steel demand is particularly sensitive and the knock-on effect on shipping hits three important services; the transports of iron ore, coal and steel.

The relatively low dry bulk carrier fleet age gives a continued modest dwt removal forecast for 2023-2027. In dwt the total will be 44M dwt, plus 10%, whereof 14M dwt in 2027 alone. Given the many old smaller ships in the fleet the increase will be higher in numbers. Looking further ahead, all the ships delivered in 2009 and onwards will be on schedule for removals and thus the total removals will increase dramatically towards the end of this decade. This will impact the ordering of new ships.

In 2018-2022 the dry bulker fleet grew by 3.3% yearly measured in dwt capacity. The forecast for fleet growth in 2023-2027 stands at 3.2% yearly. The fastest growing segment will be the 60’-100’dwt segment (largely Ultramax, Panamax & Kamsarmax) with a yearly growth of 4.7% in average.

For the 2023-2027 period the forecast is reasonable cautious due the numerous uncertainties. In the longer term there are many large countries in the world that need to invest in their infrastructure and that will propel the demand for dry bulk carriers, which paves the way for an optimistic outlook.

Extracts from the May issue of mi Shipbuilding and Fleet Forecast.


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