DRY BULK QUARTERLY: Coal restocking lifts Q4 dry bulk shipping hopes

While lackluster macroeconomic conditions posed significant obstacles in the recovery of dry bulk shipping market during third quarter, with poorer average returns across all vessel segments compared with Q3 last year, many market participants were expecting freight gains in Q4.

The Platts Capesize T4 Index, a global ton-mile weighted average index of four Capesize routes, stood at an average of $14,493/d in Q3, below the $22,257/d seen in Q3 2022, S&P Global Commodity Insights data showed.

Likewise, the Platts KMAX9 Index, a global ton-mile weighted average of nine Panamax routes, stood at an average of $11,229 /d in Q3, down from $17,026/d during the same period in 2022, and the Platts APSI 5 Index, a ton-mile weighted average index of five Supramax routes within the Asia-Pacific, was at an average $7,869/d over Q3 2023, from $16,692/d in Q3 2022.

Choppy Chinese, Indian demand

"China is still the key [market] impacting dry bulk shipping rates," a ship-operating source said, adding that the prolonged weakness in Chinese economic recovery was the main cause for the unimpressive dry bulk freight market during Q3.

Despite an increase in dry bulk commodity volumes moved into countries such as India, sources said the increase in dry bulk volumes shipped into other Asia-Pacific countries could not outweigh the decline in cargo quantity carried to China and, thereby, galvanize a freight recovery.

"To aid the Chinese economy, the government has announced support measures and lowered interest rates further. However, it is yet unclear whether this stimulus will be enough to halt the economic slowdown," BIMCO, the world's largest international shipping association, said in a recent report.

"In a low scenario where the government's stimulus is ineffective, we forecast dry bulk demand to grow by 0.5 percentage points less than in our base case in 2023 and 1 percentage point less in 2024," BIMCO said.

BIMCO also said it was unlikely China would increase its economic stimulus given its "high debt after years of boosting public spending".

India, the other major Asian economy and the second-largest coal importer, saw weaker demand in Q3 with many end-users and buyers being well-stocked prior to the monsoon season.

Pacific rides on Atlantic inefficiencies

Meanwhile, delays and long waiting times at some Brazilian ports along with Panama Canal congestion have contributed to inefficiencies, which has supported Panamax rates during the second half of Q3 2023.

"Charterers sought ships further away in the Pacific [to move these cargoes out of the Atlantic], hoping that waiting time improves by the time these vessels arrive," a second ship-operating source said.

That resulted in competition for Pacific tonnage from Atlantic charterers and has forced charterers in the Pacific to improve bid levels to secure vessels at higher rates.

The KMAX9 index registered an upward trend between from $8,026/d onaug.1 to $14,661/d on Sept. 29.

Many sources said that persistent inefficiencies along with adverse weather would result in tighter tonnage supply and keep dry bulk rates supported.

Coal may power Q4 freight rates

China's restocking of coal ahead of the winter season was anticipated and that might propel shipping rates in Q4, according to market participants.

"Chinese buyers might come back with a flurry in Q4 after the Golden Week holidays," a third ship-operating source said, adding that expectations of active seaborne coal procurement may push Supramax rates higher.

The source said scheduled maintenance on Daqin railway in October -- a major transportation network moving coal within China -- may potentially result in Chinese buyers turning to seaborne coal, which may spur dry bulk shipping rates in Q4.

Also, Capesize sources said inquiries made to move Australian thermal coal to Southeast Asia during Q4 have risen and that will likely result in charterers competing for ships to move West Australian iron ore, lending support to Capesize freight rates.

Additionally, India's post-monsoon thermal coal demand is picking up significantly amid greater energy usage, which has seen several Panamax-size shipments of Indonesian coal bound for India which could last until November, according to a fourth ship-operating source.

"A lot more coal is moving into India on Capesize vessels, too," a Singapore-based ship-owning source said, suggesting a renewed cause of optimism for the dry bulk shipping market in Q4.