“Looking forward towards the seasonally strongest period of Q2 and Q3, market sentiment remains rather mixed, anticipating a few generous spikes but being pensive for the annual average performance.”
Following a quite uninspiring fourth quarter of 2022, Baltic Dry Index stepped into the first quarter of the current trading year with a rather tepid feeling. In fact, one should dig well into trading history to draw a parallel with this quarter’s steep downward correction of the spot market, with all segments being under severe pressure. Additionally, softer Chinese growth in the closing months of 2022 underscored the hefty costs of Beijing’s longstanding zero-Covid policy. In this context, expectations for the first quarter of the spot market were anything but sanguine.
Trading activity was facing a double whammy of swelling Covid infections and the holiday season in China, causing a slow de-stocking of commodities. On top of that, a lukewarm start of the economic year for the rest of the world added further pressure to the Baltic indices. In sync, market transactions in the Dalian Commodity Exchange were muted in early February. Not being in a rush to increase their production, steel mills hung back, waiting signals of further policy support. This wait-and-see approach of steel mills along with a sluggish real estate recovery had a negative bearing on the commodity demand. Indicatively, iron ore stocks at China's major ports under Mysteel's tracking mounted to a ninemonth high of 141.1 million tonnes as of February 16.
Even with the country reopening and the government easing its leverage limits to boost growth, the locomotive of global economy had yet to gather the necessary momentum to steam steadfast. During the same period, the IMF was stressing that global economic uncertainty remained elevated, weighing on growth. In particular, global growth was projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024, according to the Fund. The forecast for 2023 was 0.2 percentage point higher than predicted in October 2022 but below the historical (2000-19) average of 3.8 percent.
March, on the other hand, had a better feeling in the spot market, with China’s national bureau of statistics reporting that the domestic manufacturing sector expanded at its fastest pace in more than a decade during February, in one of the clearest signs that the world’s second-largest economy was steering clear of the effects of a nationwide Covid-19 outbreak. Riding this wave, the Baltic Dry Index was on a rise in early March, reporting material gains. Whilst all shipping eyes were on the course of post-Covid China, authorities around the globe were on high alert for the fallout from the recent bank turmoil following the collapse of Silicon Valley Bank and Signature Bank in the US and the emergency takeover of Credit Suisse.
Speaking at a conference in Beijing, IMF managing director Kristalina Georgieva warned of increased risks to financial stability and the need for vigilance following the recent banking sector disorder in advanced economies. Amidst this tumultuous backdrop and with global steel production decreasing slightly month-onmonth, Baltic indices trended mostly sideways during the last couple of weeks of the seasonal weakest first quarter.
In this juncture, the most China-centric among segments, Capesizes, had a rather lacklustre average of $9,144 daily for the first quarter of 2023, or down 15.8 percent from the average of the first quarters of the last five years. Additionally, the aforementioned average lay well below last year’s Q1 performance let alone the stronger second half of 2022. As far as the Panamax segment goes, the BPI 82 TCA experienced a dull first quarter average of $11,326 daily, or 17.4 percent below that of the five years.
With three-month average for Supramaxes at $10,171 daily and for Handies at $9,702 daily, freight market of the geared sub-market made a hard landing to a new reality this quarter, reporting 23.5 percent and 25 percent lower averages than their trailing five-year ones respectively. Additionally, by considering a broader ten-year horizon, all segments but Kamsarmaxes were balancing below their longer-term average values, with Capesizes being the worst performers.
On the S&P front, with an average price for the first quarter of 2023 of $38.75m, run-of-the-mill five-year-old Capesizes were on the market at circa five million dollars above their Q1 five-year average. With a higher seven-million price tag, eco five-year-old Capesize units had a Q1 average of $45.5m. Modern Kamsarmaxes had an average price of $30.5m during the last three months, or $3m above the respective average of the last five years. Moving down the ladder to the geared tonnage, market for five-year-old Ultras and same-aged large Handies lingered on average at $29m and $25m respectively, or 16.5 percent and 20.1 percent above the average prices of the Q1s between 2019 and 2023. It has to be noted that market expectations in the closing of this quarter are materially different compared to its start. Thus, asset prices are currently balancing above the aforementioned Q1 average levels. However, they are still largely lagging their recent 2022 peaks.
As market is leaving a rather lukewarm first quarter behind, the dynamics of the previous three months injected uncertainty in the market. The much-anticipated boost from post-Covid China has yet to deliver astounding results. In spite of the exceptionally strong February performance which pushed Baltic indices higher, activity in China's manufacturing industry slowed again in March, with the official PMI balancing lower at 51.9 points. Looking forward towards the seasonally strongest period of Q2 and Q3, market sentiment remains rather mixed, anticipating a few generous spikes but being pensive for the annual average performance.
Data source: Doric