Friday Big Picture Report
Soybean exports are dominated by three countries, Brazil, USA and Argentina. But with a large number of different load ports spread across long coastlines and several major rivers, it is a very fragmented trade, necessitating a much broader range of ship types than we see in the Capesize-dominated iron ore market. Tracking what is going on with the seaborne soybeans is made more complex by the highly seasonal nature of exports.
This week has seen the Posidonia conference taking place in Athens, with the biennial event now in its 50th year. For those who didn’t make it, or partied so hard they can’t remember it, here is a recap of some of the key topics that came up in discussion.
Risks to the Forecasts
What’s the risk?
Ultimately shipping will remain a cyclical business, and the job of the analyst and forecaster is to identify the duration of each phase of the cycle and its magnitude. But there are any number of paths the market can follow. So to add to last week’s report on our market forecast, we review the key risks to our outlook. Several of these are to the downside, but there are undoubtedly a few factors out there that can push rates higher, whether as part of a short term spike or a slightly longer term driver.
The Cycle Continues Upwards
We have just updated our market forecast out to 2022. As well as including revised supply and demand expectations, we have also started to build more explicitly into our outlook how we think the market will react to the IMO’s bunker sulphur legislation. We remain positive on the near term outlook, but we are more cautious post-2020 when we expect the economic cycle to have turned and supply growth to be picking up.
World’s Oldest Metal
With world copper output on the rise and with Chinese demand continuing to show robust growth, the copper market looks set to see increased volumes, with growing demand for the smaller bulk vessels.
We all know that ships have been getting bigger, as economies of scale and technical innovations lead to improvements to vessel design and size. And as ships have gradually got bigger, it has had a dramatic affect on the composition of the overall dry bulk fleet, with the trends set to continue.May 10th
2018 so far
A Poor Start
After a stellar end to 2017, the Capesize market performed pretty poorly through to mid-April of this year, with the Baltic Exchange 5TCs dropping as low as $7,051/day and the average for Q1, at $13,110/day, 43% lower than it was in Q4 ‘17. It wasn’t so bad on the smaller vessels sizes, with the Panamax, Supramax and Handysize TC Averages down 4%, 3% and 9% respectively quarter-on-quarter. But what was going on to push Capesize rates down so far?
Global Economic Outlook
Despite the threats of trade wars and sanctions, the global economy is performing well and that is expected to remain the case for at least another 12-18 months. This gives the freight market a positive platform in the near term, with trade growth expected to exceed the strong GDP performance. But from 2020 the picture is more mixed, with a cyclical slow-down forecast. And unfortunately for the dry bulk market, this coincides with the growth in output from shipyards. Time to make hay while the sun shines?
Nickel & Nickel Ore
Shipments of finished nickel are only a tiny part of bulk carrier demand, but nickel ore is much more significant – China’s imports were 34 million tonnes last year with a further 6 million tonnes imported by a range of other countries. 2018 looks set to see some interesting dynamics in both the nickel and nickel ore markets, with significant repercussions for freight demand.
The politics that have lead to China threatening to impose tariffs on imports of US soybeans have been covered widely in the mainstream press, so we wont attempt to cover the broader cause of the trade war here. And the important thing to remember of course is that so far it is just a threat, no action on tariffs has yet been taken. But if things do take a turn for the worse, what is the role of the US and Chinese soybean trade in the freight market?
Event Impact Analysis
- Forecast for US winter wheat production shows small improvement June 18th
- Mixed reports give uncertain outlook for Indian coal imports June 18th
- Cliffs finds a buyer for its Australian mines – good news for Esperance and capes June 18th
- Steel margins remain strong providing positive outlook for Q3 June 18th
- Egypt facing the prospect of higher wheat prices as cargoes are rejected June 8th
- Outlook for Australian wheat harvest continues to decline amid drought June 8th
- Newcastle tries to diversify away from coal June 8th
- Higher electric arc furnace output bad news for iron ore producers June 8th
- Sept-Iles reopens after two month strike closure May 31st
- Australian wheat exports continue to lose trade to Black Sea suppliers May 31st
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