This article is from Shenwan Hongyuan Securities Research report "Analysis Framework of dry bulk Shipping in Shipping Industry: after 20 years, Chinese demand has once again become phased dominant".
Analyst: Yan Hai
The Baltic dry bulk Index (BDI), a leading index of international trade, has soared 116% since February 17 and has risen above 1000 points this week, with Hong Kong's shipping sector rising for days.
Generally speaking, if there is a significant rise in BDI, it means that national economies are in good shape and international trade is just hot, which means that the dry bulk shipping market, which has been weak for nearly a year, may be recovering.
Unlike previous years when the BDI index bottomed out and rebounded from the fifth day of the first lunar month to the fifteenth day of the first lunar month, this year's BDI bottomed out in 26 of the first lunar month, which is related to the overall progress of resuming work. Considering that rebar and iron ore have been leading by a week, superimposed with a low base of BDI, Shen Wanhongyuan team believes that the bottom of dry bulk goods rebounded late but not absent, and there is a potential for continuous double-digit growth.
Previously, seasonal factors magnified the negative impact of global economic weakness and port congestion relief, superimposed the Chinese Spring Festival and the epidemic repeated downward demand, short-term supply and demand contradiction led to the continued decline of BDI. However, the Shenwan Hongyuan team believes that the short-term disturbance is not a structural change, the contradiction between supply and demand in the bulk market is tightening, and the advent of the peak season will promote BDI to stabilize and rise.
On the demand side, China's contribution is mainly incremental. The three major dry bulk cargo categories are iron ore, coal and grain. China contributes 76% of the global demand for iron ore and 13% of the global demand for coal, while India contributes 24% of the global demand for coal.
Shen Wanhongyuan team believes that China's post-epidemic recovery will contribute to the increase in bulk trade demand.
On the supply side, dry bulk fleets also benefit from ageing fleets, inadequate hand-held orders and new shipbuilding capacity, and environmental constraints.
Orders for new dry bulk ships account for only 7% of global capacity. Clarkson predicts that in 2023 and 2024, global dry bulk supply will grow by 1.8%, 0.3%, and demand by 2.0%. Under the circumstances that the capacity of the shipyard is tight and the berth is occupied by containers, natural gas, cars and ships, the new supply in the future is limited. Carbon emission restrictions EEXI and CII under IMO and EU carbon tax EUETS and Fuel EUMaritime all have a far-reaching impact on the future speed and operational efficiency of bulk carriers and the elimination of old ships.
In addition, the Shen Wanhongyuan team pointed out that the rise in oil tankers is still in its early stages, with VLCC TCE (equivalent period rents for large oil tankers) rebounding to 50, 000 more than expected in February. China's refinery operating rate still has a large upward space, air international routes have not yet resumed, marking and other terminal refining demand still has room to recover, supply-side VLCC (super large oil tanker) new ship orders remain low, the current is only the early stage of the upstream stage of oil tankers, the follow-up space is expected.
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Edit / phoebe