Sentiment among dry bulk ship owners seems to be at a new high as Baltic Dry Index (BDI) hit a 34-month record at 1,332 points, according to a weekly shipping report from Allied Shipping Research.
The market increase that has seen some routes on the Capesize Index reach a three-year high has been driven by the increased activity noted in the coal and iron ore trade, especially from China.
The country’s increased imports of coal and iron stem from a higher demand resulting from the Chinese government’s decision from 2016 to reduce production levels of its coal and steel.
In particular, China set out to cut coal production by roughly 800m tonnes (25% of its production in 2016) and the steel production set to be cut by around 100-150m tonnes (nearly 20% of its production in 2016).
The cutting back in local coal production has made China more reliant on seaborne imports which in some cases is sourced from as far away locations as U.S. and Canada, the shipbroker said.
However, there are signs of caution in the wind, with talks of a curb in coal imports by the Chinese government in order to boost the performance of the remaining coal mines.
As explained by Allied Shipbroking, this could cut back some of the recent trends in import volumes that have been noted over the past couple of months.
Separately, the long-awaited recovery of the dry bulk shipping market might also come from the power-game around the Korean peninsula.
This is especially in the light of the heightened sanctions against North Korea being introduced by the UN Security Council on the heels of North Korea’s nuclear missile tests.
China has been importing annually about USD 1 billion worth of mineral products from N. Korea, according to Intermodal Research and Valuations.
As Beijing decided to ban all imports of North Korean coal in February this year, China might also want to source out more coal from other countries.
“We can only assume that these imports should come from other sources increasing the ton-mile and giving its incremental contribution to the recovery of the shipping indexes. This combined with other economic policy from China on iron ore and coal imports, the better than expected data on world trade growth for 2017 and the improving orderbook to trading fleet ratio has put the long-awaited recovery on the horizon,” Intermodal’s Theodore Ntalakos said.
The BDI index stood at 1,344 points as of September 12, dropping 11 points. Cape Index amounted to 2,724 points, while Panamax and Supramax indexes were considerably lower at 1,429 and 908 points respectively.
In March this year, the BDI finally broke the 1,000 mark after spending months in the doldrums.
However, as indicated by BIMCO in its forecast on the sector’s outlook, for the market’s recovery to be meaningful, full year profits for all dry bulk segments should be maintained, requiring a full year where the average BDI is above 1,280 points.