• A December to Remember for Dry Bulk, as Capesize Rates Collapse – The anticipated strong finish to the year now feels like a distant memory, as Capesize spot rates have fallen to their lowest levels for this period in many years, barring the COVID-19 anomaly. This surprising decline, which even exceeded our conservative forecast of relative stability, contrasts sharply with signs of recovery in Panamax spot rates, albeit from historically low levels. A meaningful Capesize recovery before year-end appears now unlikely, with both basins oversupplied in tonnage and demand remaining steady. Capesize rates have performed strongly for much of the year, a notable divergence from Panamax rates, which have steadily declined since peaking in March. Looking ahead, expectations for 2025 have tempered significantly, with Capesize futures comfortably below $18,000—on par with levels seen this time last year. However, the outlook is not entirely bleak. The recent Chinese government's commitment to bolstering economic support next year could provide a much-needed boost to steel markets, potentially driving increased iron ore activity. Although iron ore inventories remain unusually high for this time of year, any improvement in sentiment could positively impact freight rates. While sustained strength in the market may be difficult to envision, a tradable rally fueled by a broader commodity boom cycle resulting from higher Chinese activity remains a real possibility.
• Scent Of Real Stimulus from China as Trade Wars Loom – The December Politburo meeting stood out as more significant than the usual monthly sessions, as it introduced stronger language regarding economic support. While the meeting lacked detailed specifics, it marked the first time in recent memory that the Chinese government signaled a willingness to further ease monetary policy and adopt more proactive fiscal stance to bolster consumption. This represents a meaningful step toward a potential stimulus package aimed at boosting investment in the coming year. However, details remain scarce. While commodity markets responded mostly positively, the specifics—critical to understanding the implications—are unlikely to emerge before early next year. China's steel markets remain under pressure, with profit margins in negative territory, iron ore inventories near record highs for this time of year, and steel production trailing below recent peaks on a 12-month basis. Speculating on the nature of any potential stimulus remains challenging. Recent announcements have focused on refinancing and balance sheet restructuring rather than direct economic stimulus. Nonetheless, we anticipate a shift toward consumption-focused policies in the coming year. Without such measures, another slowdown in economic growth seems likely, as current activity appears driven more by local government debt recycling than by genuine economic expansion.
• Our Long-term View – The last few years have been characterized by increased geopolitical uncertainty. Going forward, we expect such events to continue to affect global trade and have a meaningful impact on effective vessel supply. Combined with the potential for a multi-year cyclical rebound in China’s economic activity following the recent economic turmoil, dry bulk shipping should experience higher volatility on top of a secular tightness driven by stable bulk commodity demand and a slower fleet growth owing to a relatively low orderbook.
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