Fall in the BDI- is this more than a traditional seasonal drop? Should we fear for a bad year?

As the BDI falls to its lowest levels in almost two years, is this merely a seasonal lull or is this the sign of things to come for 2019 in the dry bulk markets? 

Whilst this time of year is traditionally slow for dry bulk markets as the far east prepares for Chinese New Year, in the short term the sentiment has been further amplified by news of the tragic dam break at Vale’s Corrego do Feijao iron ore mine in south eastern Brazil which has sparked concerns that this could lead to lower production of iron ore which will impact the capsize sector. In North West Australia, the cyclone season has also caused delays to the port of Dampier. According to Alibra period rate estimations, the average one-year rate for capes in January is down 4% from Q4 2018 to $17,450/pdpr. 

Historically January is a weak month for dry bulk, although the market tends to see some support from the Atlantic. This year the rates in the Atlantic have also fallen too due to a lack of soybean exports from the US to China as a result of the trade dispute between the two countries, putting further pressure on an already weak market. The question that remains is indeed if the market can get any worse or has it bottomed out? What is certain is that the market will have to wait a to find out, rates rarely rebound straight after the celebrations as charterers and owners will have their positions covered for the coming weeks. 

In the longer term it is not easy to be positive amid concerns of a global economic slowdown and the ongoing trade war between the US and China. However, the dry market might see some improvement in early March depending on the outcome of trade talks, but we don’t foresee a drastic change and consequently this year will be quieter than 2018. There is however some light at the end of the tunnel at the end of the year as the 2020 IMO sulphur cap regulations could contribute to increased freight rates.

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