The Dry Bulk Weekly Review in Shipfix Data
According to Shipfix’s forward-looking data, last week’s significant retreat for the Capesize freight rates was preceded by a substantial decline in ordering activities across the segment. Among other things, a drop in demand for Capesizes in the Australian spot coal trade contributed to the weaker volumes. Also, the data set has, over the past few weeks, signalled a recovery in demand for seaborne transportation of US grains and oilseeds to China.
A Drop in Weekly Cargo Order Volumes Preceded the Capesize Rout
After having provided much of the upward momentum for the Baltic Dry Index over the past two months, the Capesizes weighed heavily on the headline index last week. After five sessions in the red, the freight index for the largest vessels recorded a weekly decline of 37.4 per cent. Last week’s development erased the previous month’s gains and brought the gauge back down to the levels seen during the final week of September.
Weekly spot cargo order volumes for the Capesizes have dropped sharply over the past two weeks. The week before last saw the global aggregate drop by nearly 50 per cent week-on-week, and volumes remained subdued during the past week. While the decline in demand was a global phenomenon, the Atlantic basin provided much of the downward momentum. As a result, the drop in cargo order volumes provided a leading indicator for last week's substantial drop in spot freight rates.
In terms of lower demand and cargo destinations, the drop in order volumes was, to a great extent, driven by lower demand for seaborne transportation of commodities to Chinese ports. Over the past two weeks, volumes for discharge in China have halved compared to what was observed during the first half of October. Still, as a large part of the decline in demand for Capesizes is linked to lower Chinese activities, the past week’s economic announcement could translate into higher demand for Capesizes and a rebound for the segment’s freight rates.
The Rebound in Chinese Imports of Australian Coal Lost Some Steam in October
As highlighted in previous editions of Shipfix’s market research, the memories of the Chinese unofficial ban on imports of coal from Australia are fading fast. Since the beginning of the year, volumes have steadily recovered from virtually zero over the preceding two years, as China’s appetite for the dirtiest of fossil fuels remains strong. Still, despite the recovery and recent solid monthly volumes, the total for the year may fall short of what was observed during the years prior to the introduction of the embargo.
The demand in the spot market for seaborne transportation of Australian coal to Chinese ports has been trending higher throughout the year. However, after topping five million tonnes in September, the current month may be on course for a month-on-month decline, the first since July. Assuming a linear development for the remainder of the month, demand in the spot market in October could reach 5.1 million tonnes, a decline of around five per cent compared to September.
The recovery of the Australian coal trade with China has primarily benefitted the Panamaxes and Capesizes in the spot market. The average cargo order size has been trending higher throughout the year and has stayed around 80,000 tonnes over the past two months. During the period of the Chinese ban on most Australian imports, spot demand for the Australian coal trade shifted somewhat towards the smaller segments. Hence, the renewed Chinese appetite for Australian coal will provide support for freight rates in the larger segments, but the recent deceleration could temper sentiments to some extent.
Cargo Order Volumes for US Grain and Oilseed Exports to China Showing Signs of a Rebound
With the US harvest season well underway, demand for seaborne transportation of grains and oilseeds to China has been robust since early August. While weekly cargo order volumes have failed to match the early seasonal peak of nearly 1.7 million tonnes in the middle of August, demand has remained robust, albeit volatile. Still, the past two weeks have seen aggregate volumes recovering to around one million tonnes. The recovery over the past month has been relatively broad-based, with activities across all US coastlines increasing.
The current rebound in demand for seaborne transport could, if the patterns from recent years repeat themselves, extend into next month. Over the past years, there has been a tendency towards weaker ordering activities during October, followed by an often strong rebound in November. Hence, demand could see a pick-up in the coming weeks, supporting freight rates.
The average size for the cargo orders has remained relatively constant at around 60,000 tonnes throughout the year. Hence, should a seasonal rebound in the US-to-China trade continue to develop, it will likely primarily benefit the mid-sized segments.
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