In its trading update for the first quarter, PacBasin noted that spot market conditions recovered especially in the Pacific, which improved 31% year-on-year to its highest quarterly average since early 2014. Atlantic market rates also saw a good 26% rise.
PacBasin said the upward trend in market freight rates during the quarter was driven by further improvements in both demand and supply side factors. On one side, strong Chinese dry bulk imports, especially in minor bulks, which is estimated to have increased around 17%, helped boost demand, amid a continuing recovery in demand for commodities such as concentrates and logs from Australia and New Zealand.
Meanwhile slower growth in global dry bulk capacity was a key driver of freight rate improvement from the supply side, and market factors such as shortage of suitable capacity and reduced new ship deliveries from Asian shipyards helped boost rates in the Pacific.
While saying that “the first-quarter improvement in the market for minor bulk shipping is encouraging and, with the all-important supply fundamentals looking more positive, we are cautiously optimistic for a continued market recovery”, PacBasin warned that there would be some volatility along the way.
Among possible dampeners, PacBasin especially highlighted the effects of a possible trade war between the US and China. The minor bulks specialist however noted that “dry bulk cargo flows threatened by these protectionist measures account for only a small fraction of the trades in which Pacific Basin is engaged and we do not expect them to have a material impact on the overall dry bulk market”.
PacBasin further pointed out that total US soybean exports to China in 2017 represented about 0.6% of total dry bulk seaborne trade, and the majority of this volume moves in Panamax and Kamsarmax vessels and not on its vessel types.
It added also that no implementation date for the tariffs has yet been set, any impact on trade volumes in the medium term would likely be limited as the high season for US soybean exports does not start until the fourth quarter, and while Chinese buyers will still depend on significant soybean imports from the United States, they will likely continue to buy more from Brazil.
“While we believe these protectionist actions could affect the dry bulk trade, the impact would be largely outweighed by positive dry bulk supply fundamentals and continued global dry bulk trade growth overall,” PacBasin concluded.
Looking ahead, PacBasin said: “The favourable outlook for widely-spread global GDP growth bodes well for dry bulk demand, and supply is expected to be kept in check by the continued gap between newbuilding and secondhand prices and the uncertain impact of new regulations on ship designs, both of which cause many shipowners in our segments to refrain from ordering new ships. These supply-side factors will continue to benefit freight market fundamentals in the future.”
PacBasin continued on its winning ways in the first quarter, generating average Handysize and Supramax daily TCE earnings of $9,360 and $11,250 per day, outperforming their spot market indices by 16% and 10% respectively and amounting