DRY BULK QUARTERLY: Q2 market recovery anticipated, but uncertainty remains

The dry bulk shipping market hit pause in Q1 2025, grappling with sluggish activity due to seasonal holidays like the Lunar New Year across Asia and uncharacteristically poor weather. While market participants are hopeful for a rebound in dry bulk shipping rates in Q2 2025, caution prevails as geopolitical and tariff tensions along with unpredictable weather patterns may threaten to further disrupt freight rates.

The Platts Capesize T4 Index, a global ton-mile weighted average index of four Capesize routes, averaged $12,369/d in Q1 2025, a significant drop from $22,088/d from Q1 2024, according to S&P Global Commodity Insights data.

Similarly, the Platts KMAX9 Index, a global ton-mile weighted average of nine Panamax routes, averaged $8,763/d in Q1, down sharply from $15,498/d in Q1 2024.

Likewise, the Platts APSI 5 Index, a ton-mile weighted average of five Supramax freight routes in Asia-Pacific, averaged $6,090/d for Q1 2025, down from $10,506/d in Q1 2024.

Bauxite crucial for Capesize returns

In line with market participants' weaker expectations, seasonal bad weather in the South Atlantic and holidays like the Lunar New Year in Q1 2025 led to reduced iron ore export volumes and depressed Capesize trading. Additionally, Tropical Cyclone Zelia, which hit the Pilbara region of Western Australia in mid-February, further hampered performance as major mining companies were not actively fixing ships.

However, Capesize market participants largely expect a stronger Q2 2025, as adverse seasonal weather is predicted to ease. "The prevalence of cyclones in the South Pacific will gradually diminish in Q2 [2025] and rates will rebound [compared to Q1]," a Capesize operator noted, indicating that Western Australia's iron ore loadings will return to normal. Additionally, as Brazil's rainy season winds down, major iron ore miners are expected to ramp up shipping volumes, boosting the Capesize market.

Capesize performance will hinge on bauxite volumes, as a shipbroker said, emphasizing that sustained Chinese demand for the reddish-brown commodity is crucial. According to S&P Global Commodities at Sea, China's seaborne bauxite imports for 2024 reached 175.7 million mt, a significant rise from 155.6 million mt in 2023. With West Africa as the primary exporter, market participants expect that improved bauxite flows on the West Africa-China route will enhance ton-mile demand and support Capesize earnings.

Diminished Pacific coal appetite

Meanwhile, thermal coal demand in Asia-Pacific is expected to decline after state-owned utility China Shenhua said late February that it would suspend coal purchases due to abundant stockpiles. The decision has dampened shipping market participants' hopes for a strong rebound in Q2 dry bulk shipping rates.

Historically, global coal volumes in the Panamax market improved in Q2 compared to Q1. However, "this year's increase might not be as pronounced as in previous years," a commodity trading source said, suggesting that Q2 2025 may see limited gains in seaborne coal volumes for the Panamax segment. This aligns with expectations that seaborne coal import volumes into China in April are likely to experience a significant drop compared to March.

Additionally, a ship-chartering source said: "Chinese demand for thermal coal imports is weak due to high coal stockpiles and more competitive domestic prices. The Chinese economy is still facing challenges." The source further indicated that if Chinese demand for thermal coal continued to decline without significant short-term improvement, earnings for the Pacific Supramax and Panamax segments in Q2 were unlikely to exceed those of the same period in 2024.

Despite the prevailing negative sentiment in dry bulk shipping markets due to reduced coal demand, some shipping sources believe this trend may not last long. "It's a decision to digest the high coal stockpiles, and it's periodic," a shipowner said, suggesting that China's state-owned utility could lift the suspension on new coal purchases once current stockpiles are gradually utilized and need replenishment. As a result, there may be limited potential to depress freight levels for Supramax, Panamax, and to some extent, Capesize vessels in Asia-Pacific over the long term.

A second ship-operating source noted that India's thermal coal demand could rise in April and May as coal restocking begins in anticipation of the monsoon season, which is expected to start in June. This increase in seaborne coal volumes to India may support Panamax and Supramax rates in the upcoming quarter.

Weather, government may drive rates

Despite improving seasonal weather conditions in Q2, several sources indicated that unpredictable weather patterns could significantly affect dry bulk shipping rates in the upcoming quarter. Volatile weather changes may cause vessel delays and temporarily disrupt tonnage supply, leading to imbalances in demand-supply dynamics and rapid fluctuations in dry bulk freight.

Also, uncertainty surrounds the US Trade Representative's potential implementation of hefty port fees on Chinese shipping companies and operators of Chinese-built ships calling at US ports. Shipping sources widely believe this could artificially distort tonnage availability and disrupt the freight market if enacted.

Another significant concern for the market is the threat of a trade war after the US imposed sweeping tariffs on imports, which would hinder shipping volumes.