Weekly Report 07/08/2023
Next Week's Predictions:
Capes: The first week of August showed its true colors as holidays reduced substantially trading activity and consequently volatility. The Cape 5TC spot index started the week at $15,533/day and closed on Friday at $15,080/day. The 2 main iron ore export routes C3 and C5 managed marginal improvements over the week as typhoons in the east and relatively low numbers of spot ballasters towards the Atlantic kept charterers on their toes. Sentiment: 6
Panamax: The grain-related sizes had a decent week as the spot 4 TC Panamax index rose from $7,900/day to reach by Friday the healthier level of $8,864/day. Grain-related chartering activity was the main driver of this reversal in Panamax's fortunes, albeit from a historically low level. Sentiment: 6
Dry Bulk:
We are more constructive than the consensus on the recovery outlook for 2H23 and beyond after the recent Politburo meeting reset the policy tone on the property and local government debt. There has also been a reset in regulatory policy and foreign policy so far this year, as the focus for policymakers has shifted from de-risking to growth/employment. (Macquarie)
Policymakers have stepped up support since June, given the sharp slowdown after 1Q. As a result, we expect growth momentum to accelerate gradually after the trough in 2Q. At this point, we see three multi-year cycles at the bottom: credit cycle, inflation cycle, and earnings cycle. (Macquarie)
Dry Bulk demolition prices are on a downward trend from their 2023 highs of around $600/ldt as the latest quote basis Indian subcontinent fell to $555/ldt. It is worth noting that so far in 2023 64 dry bulk vessels (7 capes/15 Panamax/22 Supras/10 Handies)went for scrapping which is far higher than the full 2022 scrapping numbers.
Spot Indices and weekly FFA prices: BDI 04/08: 1,136 - 28/07: 1,110 5TC BCI 04/08: $15,080 - 28/07: $15,180 4TC BPI 04/08: $8,864 - 28/07: $7,438
Weekly traded volumes and open interest:
Capes/Iron Ore/Steels:
More than 8 million tonnes of blast furnace capacity in the EU has returned to operation in the past month, industry reports claim, with EU production falling behind India this year. Eurofer predicts European apparent steel consumption will rebound 6.2% in 2024 after a steeper-than-anticipated recession of -3% this year.
The growth in demand in July for seaborne transportation for bauxite to China is likely to reflect a combination of shrinking inventories and expectations of increasing demand for aluminum. The West Africa to China trade accounted for a substantial part of the spot market but unlike recent months it was dominated by Capesizes by quite a margin.
The past two weeks have seen the iron ore price collapse to close to $100/tonne and China domestic steel prices (particularly HRC) rally, largely on renewed market talk of a government-mandated steel production cap. The actual level of the cap, if enforced, remains unclear. In a scenario where mandated cuts are carried out, we think it is most likely that Chinese annual crude steel production ends the year somewhere between 2021 and 2022 levels, rather than flat y-o-y growth. (Macquarie)
CISA projects steel exports for the whole of 2023 at 80 million tonnes, which implies a mild slowdown in the second half of this year, as January-June exports had reached 43.6m tonnes. This would mark a y-o-y gain of nearly 13m tonnes if realized.
The Clarkson Load Port Congestion Index for iron ore and coal rose by 20% in the last week of July, the highest point in 13 weeks.
Iron ore prices have lost value for most of this week as the spot level got close to $100/tonne by Thursday and the forward curve showed a negative trend as prices showed a backwardated shape.
Cape physical prices were supported this week by 2 typhoons in Southeast Asia and a lack of spot ballasters coming into the main Atlantic loading areas. Brazil's iron ore requirements and West African bauxite orders for 2nd half of August kept rates in check with a rising trend.
Panamax/Grains/Coal:
With the recent typhoons hitting China, hydropower generation should increase to the detriment of coal-based electricity production. Typhoon season in East Asia continues to bring torrential rains and dropping temperatures, which reduces cooling demand. Chinese coal burn at main power plants eroded from their recent local peak and stocks have increased.
Across the northern and western edges of the Black Sea merchant shipping faces the vagaries of war, with vessels increasingly avoiding the region. Russia has been attacking Ukrainian ports and grain export sites along the Black Sea and the Danube hard in the two and a half weeks since it quit a United Nations-brokered grain.
The Panamax physical market's main driving force in the Atlantic Basin centered around South American grain exports whilst the Pacific saw a mixed bag of demand giving decent support but nothing more exciting than that.
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