Amidst a pervasive sense of euphoria, the dry bulk sector concluded February at 2111 points, a level not seen since 2010 during this trading period.
Amidst a pervasive sense of euphoria, the dry bulk sector concluded February at 2111 points, a level not seen since 2010 during this trading period. A few years ago, buoyed by unprecedented expansionary policies and significant disruptions in supply chains, the Baltic Dry Index (BDI) made a bold attempt to surpass the 2000-point mark. However, the breakdown among various segments was vastly different then compared to the current juncture. Notably, the star performer of the month was the Capesize segment, with rates averaging around $31,045 daily, a substantial increase from just $13,414 a couple of years ago. However, the market equilibrium in other segments is not as promising. The Panamax and Supramax sub-markets, with daily rates ending February at $15,130 and $13,832 respectively, are significantly trailing their values from the end of February 2022, which stood at $23,389 and $26,711 daily, respectively. This discrepancy is even more pronounced in the Handysize spectrum, with the Baltic index ending February at $12,746 daily, half the value it held two years ago.
In stark contrast to the upbeat sentiment in the spot market of late, the outlook from the macroeconomic and macro-commodity fronts is less optimistic. Indeed, steelmakers are kicking off 2024 at a slower pace. World crude steel production for the 71 countries reporting to the World Steel Association totaled 148.1 million tonnes in January 2024, reflecting a 1.6 percent decrease compared to January 2023. The leading Chinese mills were estimated to have produced 77.2 million metric tonnes of steel in January, marking a 6.9 percent drop compared to the 83 million metric tonnes churned out in the first month of 2023, according to the same source. Among the top 10 largest steel-producing member nations of Worldsteel, Brazil also experienced a year-on-year production decline, down 7.2 percent this January. The United States and Germany reported production losses as well, at 6.8 and 2.9 million tonnes, respectively. On the other hand, India, an important buyer of US and European scrap, started the year on a positive note, with its estimated output of 12.5 million tonnes surpassing last January’s figure by 7.3 percent. Offering encouragement to both the ferrous scrap and steel markets, mills in Turkey, which are largely scrap-fed electric arc furnace operators, produced 24.7 percent more steel this January.
Regarding China, alongside a subdued start to its extensive steel industry, manufacturing activity in the world’s second-largest economy contracted for a fifth consecutive month in February, as per an official survey released on Friday. Specifically, the official manufacturing Purchasing Managers' Index (PMI), compiled by the National Bureau of Statistics, declined to 49.1 in February from 49.2 in January, notably driven by a significant drop in the output component. Apart from September last year, China's official manufacturing PMI has remained below the 50-mark, which separates growth from contraction, since March 2023. New export orders have dwindled for 11 consecutive months, while a year-long decline in employment in the factory sector indicates ongoing pressure. On a positive note, the official non-manufacturing PMI, which encompasses services and construction, rose to 51.4 from 50.7 in January, marking the highest reading since September last year. This increase can be attributed to robust activity during the Lunar New Year holidays.
Despite the poor data resulting from sluggish momentum as factory activity slowed and holiday disruptions, Baltic indices seem to be exhibiting an unusual buoyancy of late. However, looking forward, China is confronting a slew of challenges to maintaining economic stability, ranging from the indebted property sector to the risks of deflation stemming from weak domestic demand. Against this backdrop, the annual meetings in Beijing, known as the "two sessions," are set to commence on Monday. Led by Chinese President Xi Jinping, these events typically yield significant policy announcements, including the gross domestic product (GDP) target for the year. Many analysts have anticipated that Beijing will set the GDP growth target at 5 percent, mirroring last year's figure. However, despite this expectation, the forward curves of the dry bulk shipping, being in backwardation, have yet to be convinced that this rate is attainable, at least without a substantial well-designed stimulus package.
Data source: Doric