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Optimism grows for recovery in dry bulk segment

Demand growth for dry bulk carriers is set to outpace supply growth this year, according to analysts, with the fleet to orderbook ratio at its lowest in decades

Cleaves Securities analyst Joakim Hannisdahl says China’s stimulus efforts will continue into 2021, leading to a net restocking cycle once the global commodity markets find a new equilibrium at a higher supply level. This could boost the dry bulk shipping market

ANALYSTS are optimistic about dry bulk shipping prospects, seeing improved market fundamentals.

Cargo demand growth is forecast to average 3.8% in 2021, outpacing an estimated fleet growth of 2.7% in the sector, according to a new report by Stifel Research.

It expected the fleet to orderbook ratio to be at 6.12%, the lowest in decades, albeit with less scrapping and little delivery slippage this year.

Cleaves Securities noted in a separate report that vessel orders should remain low in the foreseeable future due to uncertainty over future environmental regulations and related technologies. But there should be an increase from the nadir of 14m dwt in 2020.

“We forecast newbuilding contracting at 23m dwt for 2021, 33m dwt for 2022 and 36m dwt for 2023 spurred on by an improving earnings environment,

“Given the historically low orderbook, very limited demand growth is needed in order to significantly improve fleet utilisation, earnings and asset prices going forward.” said Cleaves’ research head Joakim Hannisdahl.

Although the charter market will remain challenging in the short term, raising fleet utilisation levels will support freight rates, he added.

Demand for dry bulk cargo, which has been wrecked by the coronavirus pandemic, is already recovering in parallel with the re-opening of the global economy.

As countries try to make up for lost time, the increased demand has already driven up prices for commodities, such as iron ore, to record high levels, Stifel analyst Benjamin Nolan noted.

“We expect the snapback in underlying demand to continue as reopening's and vaccinations occur.” he said.

Meanwhile, Cleaves is also positive about China’s outlook.

Mr Hannisdahl said that the government’s stimulus efforts would continue into 2021, leading to a net restocking cycle once the global commodity markets find a new equilibrium at a higher supply level. This could boost the dry bulk shipping market.

But he still warned of a resurgence in the pandemic, which could take hold of the economy and disrupt demand.

For 2021 and 2022, he predicted global seaborne iron ore trade would rise 2.1% and 4.4%, respectively, in terms of volume transported, and expand 2.2% and 5.3% in terms of tonne miles.

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