Speaking at the 15th SteelOrbis "New Horizons in Steel Markets" annual conference held online on December 1-3, Enrico Paglia, research manager of Italian maritime service provider Banchero Costa, gave his outlook for the dry bulk market. He began by saying that dry bulk deliveries have been on a downward trend in the past few years and, despite the rises in 2019 and 2020, they are expected to decrease in 2021 and 2022. In fact, the appetite for new orders, he said, will be lower due to limited availability of finance (which is quite expensive or limited to big groups); technical uncertainties, e.g., the issue of stricter environmental regulations; and economic uncertainties brought about by the Covid-19 pandemic. Mr. Paglia said that least two or three of these factors will remain in place in the future, and so he said he expects the amount of new ships ordered will be limited also in the foreseeable future. On the contrary, dry bulk demolition is expected to pick up moderately at least in the next two years. He noted that the growing trend will be driven by poor market conditions and more stricter environmental regulations, which are very invasive in the life of ship-owning companies and represent an additional cost.
The Banchero Costa research manager also spoke about the iron ore trade, recalling that China is the biggest importer, while Australia and Brazil are the biggest exporters. He reminded conference participants that iron ore is also the most transported commodity, accounting for one third of the total dry bulk trade. He stated that Australian iron ore exports increased by five percent in the first ten months this year due to booming Chinese demand. Brazilian exports increased compared to the period after the Brumadinho disaster last year, but they were relatively low in the first quarter this year, amounting to 65 million mt. However, they have recovered quickly, increasing to 78 million mt in the second quarter and to 96 million mt in the third quarter. China's iron ore imports in the January-October period this year increased by six percent year on year despite the pandemic. Mr. Paglia said he does not expect iron ore demand to decrease very strongly in the future, adding that there will be a plateau before any possible strong decreases.
Speaking of crude steel output, Mr. Paglia underlined that production in the first 10 months this year decreased everywhere except in China, while it was virtually stable in Turkey. He added that China's demand for steel is strong and, while its exports are down, its imports have been rising steadily.
Concerning freight rates, Enrico Paglia stated that the dry bulk market is undergoing a paradigm change. He noted that the dry bulk market had been affected by oversupply for more than a decade, but pointed out that demand is now the source of concern. Freight rates increased from bottom levels in the first quarter of 2016 until the appearance of the pandemic this year and the problems connected with it. In the future, he said, three key areas are to be monitored: the evolution of the pandemic, trade wars, and energy transition. Regarding trade, Paglia said that US president-elect Joe Biden should assure there will not be a new escalation of trade wars next year, at least against Europe. However, he said does not think Biden will abruptly stop the trade war with China. As for energy transition, Paglia mentioned the green initiatives which aim to make Europe carbon neutral by 2050, while he said that Biden has spoken a number of times about green energy jobs and an infrastructure plan that promises to set the US on the path to having a carbon-free energy sector. According to the Banchero Costa research manager, energy transition will have a potentially strong impact on coal, which is the second most-transported commodity in dry bulk. He added that the scale and the speed of the substitution of coal by alternative sources, e.g. natural gas, will impact demand for coal and the dry bulk market for many years to come.
Again regarding freight rates, Paglia said that, when and if the pandemic ends, freight levels will increase, though slowly. He said he expects freight rates to be still low in the first quarter of 2021, especially for big ships, but then there will be a recovery. He added that usually the strong part of the year is the second half, and so he foresees a strong performance in the third quarter, if any.