The onset of the coronavirus pandemic in the first half of the year resulted in a steep decline in global trade as economies came to a literal standstill leading to a commensurate drop in the Baltic Dry Index (BDI). With the gradual return of economic activities in 2Q2020 and boosted by a remarkable turnaround in China, the Baltic Dry Index (BDI) has peaked over 2,000 points in October, rebounding to September 2019 levels, having recovered from the dismal levels in May of 393 points.


Although it isn't expected to remain over 2,000 points for an extended period, the strong iron ore demand from China is expected to support the market through the fourth quarter of 2020. China has enacted a massive stimulus to restart the economy worth estimated at more than USD 500 billion by embarking on what can only be described as a major infrastructure push from green energy projects to electrical grids and airports, resembling the approach used in the last global recession.

This boost has reflected in the BDI, which reached the highest point of the year on October 6, when it climbed to 2,097 points.

The index, which provides a benchmark for the price of moving the major raw materials by sea and tracks rates for ships carrying dry bulk commodities, started 2020 around 700 points, dipping under 400 during May, and going perilously close to the all-time low of 290 points, recorded in February 2016.

The lowest level this year was recorded by the height of the pandemic, on May 14, when it fell to 393 points, amid low bulk shipping prices due to global lockdowns and depressed demand. The rebound, however, was quick. About one month later, on June 16 it had already crossed 1,000 points.

But as the world's top steel-making country reopened its economy, demand for larger panamax vessels increased.

Dry bulk trade is predicted to continue to recover, also pushed by the grain and soy segment, which is likely to keep growing, particularly for panamax and supramax vessels. The two biggest soybean producers, Brazil and United States, are expecting larger crops than last year, with Brazil improving 2.5 percent to 247.4 million tons and the US production projected to be up by 21 percent from last year, forecast at 4.3 billion bushels.


China's demand for iron ore offers hopes for the dry bulk market

First, the container sector has seen a recovery, driven by surging U.S. consumer demand. Now comes a rebound in dry bulk, which is the world’s largest freight market in terms of volume.

Rates for Capesizes hit year-to-date highs in October, driven primarily by industrial demand. As iron ore demand from China continues to boom, the Capesize market entered the fourth quarter on a bullish note, with the key Brazil to China freight rate at a year-to-date high. On October 2, the Tubarao-Qingdao rate for 170,000-mt iron ore cargoes stood at USD 23/mt.

China’s iron ore imports from Brazil grew by 15 percent month-on-month in August, at 23.5 million tons, which is the highest volume of Brazilian iron ore imported into China so far in 2020.

Brazilian iron ore prices hit six-and-a-half year highs in September as the Chinese construction and manufacturing sector experienced levels of activity last seen almost a decade ago. Year-to-date to September, China’s iron ore imports have jumped 10.8 percent year-on-year, amounting to 868.5 million tons. September imports rose by 9.2 percent from a year earlier, to 108.6 million tons, after a record set in July with 112.7 million tons and 100.4 million tons being imported in August.

As known, Capesize rates are largely driven by iron ore volumes from Australia and Brazil and the extent that exports from those two sources match up with vessel tonnage positioned in the Atlantic and Pacific basins.

The rise in imports helped increase the ton-mile demand on Capesize ships, which is calculated by multiplying the volume moved in metric tons by distance traveled in miles.

China’s massive role in the global dry bulk shipping market has been highlighted after the hammered rates recorded in the beginning of the year, especially as it is also the top importer of iron ore and soybeans among other commodities. Its insatiable demand, therefore, bodes well for the long-term prospects of the dry bulk market. As said, trade is expected to rise at least in terms of soybeans and other grains, mainly between the US, Brazil and China.

Analysts, however, are not yet confident in a great freight rate resurgence.


Depressed volumes remain as a challenge

Prospects for coal remain gloomy amid a steep reduction in energy demand due to the coronavirus pandemic and moves toward cleaner fuels.

Demand slump due to the coronavirus resulted in a decline of US coking coal exports, which were down by nearly 40 percent year-on-year, to 2.6 million tons in August, driven by a significant fall in shipments to Japan and India.

Weaker power demand cut Japanese thermal coal imports in 2020, as the fuel's cost advantage over LNG for power generation narrowed. The country’s imports between January and August this year amounted to 70 million tons, the lowest eight-month intake in more than seven years, down from 73.4 million tons registered in the same period of last year.

India’s plans to increase domestic coal production to supply domestic demand also has an impact on freight, as imports are reduced. The country’s coking coal imports fell to a near two-year low in July, to 2.3 million tons, another monthly low after falling to a 22-month low in June. Indian mills focused on clearing inventories, despite having ramped up steel production because of higher export sales.

India’s January-July imports declined by 20 percent from a year earlier to 28.9 million tons.

Another challenge is the reportedly Chinese ban for Australian thermal and coking coal imports, a move that is likely politically motivated, but aligns with China’s efforts to reduce pollution and consolidate its coal sector.

Lower oil production and demand, as well as lower shipments of industrial commodities to Asia, also remain threats to the overall dry bulk outlook.

Miner bulk category, which comprises around 40 percent of global dry bulk trade, especially connected to construction materials and manufacturing industries, are likely to remain depressed amid pandemic control measures.

A possible second wave of infection is also a huge risk, as lockdowns in large markets may hinder economic recovery activities impacting trade and, thereby, putting downward pressure on the global dry bulk market.


Go to top