by Thanos Sofios, Novisea
We’ve seen it all; from absolute termination of any trade and negative freight indexes to 10fold up in Capesize rates in a month!
And now what? That was it or we’ll keep moving up north to new highs?
The drivers that brought the Capesize spot market to current levels remain intact.
China’s economy improves and thus demand for steel and iron ore increases, at a time when iron ore inventories remain at 4-year lows. China’s appetite for iron ore at almost record highs. Brazilian iron ore exports are increasing and thus demand for ships to transport such cargoes is also increasing considerably.
Australia/Canada/South Africa continue to take advantage of the strong iron ore prices and are exporting at very high rates, absorbing a lot of ships too. Actually, miners are currently earning the highest net-of-freight price in many years.
Significant port congestion in China; congestion reduces effective supply as ships wait in ports to unload. In addition, globally, Capesize congestion has increased to multi-year highs and is approaching 12%, the highest level in at least 5 years, based on Clarksons research data.
Global stimulus exceeds $18 Trillion (~20% of global GDP); there is tremendous amount of liquidity around flowing into the economies while infrastructure plans and spending are increasing at a rapid pace across the globe.
For these strong reasons dry bulk shipping can be seriously considered now.
Smaller size vessels are also catching up, and both Panamax and Supramax spot rates are increasing. Dry bulk is highly levered to the macro environment, and thus the higher activity is no surprise, given other economic indicators that point to the same direction. Further improvements in the supply-demand balance should push vessel earnings higher in 2021.
The second half of 2020 should be one of the best periods for dry bulk shipping rates in quite sometime, as the macroeconomic picture is supportive, inventories for raw materials are low, and pend up demand for shipping due to delays in the first half is increasing quite rapidly.
Finally, in my opinion, the best way to follow freight rates is through BDRY, the Dry Bulk ETF. It follows actual rates, so for someone who believes that rates are going higher, BDRY offers that simple pure exposure without the noise coming from the Wall Street narrative, headline news and investor expectations. Check it out: www.drybulketf.com