Dry Bulk

Dry bulk owners will be satisfied with 2022

Why this year has been better than many give credence

After the biggest annual increase on record, 176% in 2021, the Baltic Dry Index (BDI) is set for one of its biggest annual falls on record this year, being down 33% already, the biggest drop since the end of the previous cycle in 2015 when it fell 35%. Only a strong December can prevent this, but how certain is that? The BDI rose 5% in September to 1,487 points, and 22% in October to 1,814 points, but it has given up all these gains and more in a 29% fall during November to reach 1,292 on November 25.

As usual, the capesize segment has suffered the greatest volatility. Average earnings as recorded by the Baltic’s 5TC average fell 36% for the first 25 days of November to $11,292 compared to $17,560 in October. October has been peak seasonal for capes since 2014 and that’s still the case this year with earnings reaching 108% of the year-to-date average, but last year they were 194% of the annual average and in 2021 they were 181% of the annual average.

The capes are dependent on China. The government under its now emperor for life sails serenely on, and on November 21 announced $162bn in fresh credit to property developers, along with a reduction in banks’ capital reserve ratio requirements. These measures triggered a rally in property shares on the Shanghai exchange. Iron ore futures rose with physical prices. January delivery prices were up to CNY 758 ($105.84) a tonne by November 23, the highest since August 1, and December delivery up 3% on November 25 to CNY 706 ($98.6) a tonne. Capesize rates bounced on the news with the 5TC jumping from a low of $9,057 on November 22 to $13,373 on November 25.

Coal trade continues to be buoyant, with even the UK doubling coal imports to offset high gas prices, even as Indonesia, the biggest coal exporter, announced that it wants to switch the country from fossil fuels to battery power, helped by a $20bn handout from rich nations.

Grain trades remain disrupted by the war in Ukraine, with Arnaud Petit, executive director of the International Grains Council (IGC), telling journalists in October: “We are not necessarily looking for very positive trend of trade”’ and that importers are “looking for not necessarily the cheapest origin but trying to diversify, which might also develop a new trend of trade.”

In the face of such uncertainty, month on month falls in the panamax, supramax and handysize have been less dramatic than in capesizes, with panamax average earnings for October of $17,500 a day falling 24% to $13,242 for the first 25 days of November. Supras fell 26% from $18,210 to $13,427 and handies were down 20% from $17,722 for October to $14,238 in November to date.

These are all underwhelming numbers in the context of the last two years since the markets sprang out of lockdown like an uncaged tiger. But average earnings for 2022 for panamaxes are just under $20,000 a day basis Baltic Exchange data, making this the second best year (after last year) since 2010. Similarly, average earnings for supras are just under $23,000 a day this year, lower than the $26,770 for 2021 but the second best year since the supramax 10TC was instituted in 2015. Handy earnings of $22,076 year to date may be down 14% from $25,702 in 2021 but are the fourth best year since the all-time high of $32,422 recorded in 2007 (second best was $29,282 in 2008). All in all, bulker operators can feel satisfied at how 2022 has turned out.

One’s view of the future depends on how sanguine one is about the low orderbook and whether the Carbon Intensity Indicator will encourage everyone to slow down to reduce emissions, thus reducing the available tonne-mile-days availability per ship. If everyone slows down from an average of 11 to 10 knots, then demand could fall 10% next year and the freight markets would remain nicely balanced. ●