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Flat dry bulk rates can expect tonne-mile demand increase from China-US tariff truce

The global dry bulk shipping market is expected to see flat rates and a marginal fleet growth in 2019, with potential near-term positive prospect following a temporary truce in trade war between China and US.

Ratings agency Fitch is expecting freight rates in dry bulk to remain flat on average in 2019 based on balanced volumes and net fleet growth of about 3%.

“Any escalation of global trade conflicts, especially between the US and China, could affect cargo flows, especially for grains and minor bulk,” Fitch stated.

On Saturday, US president Donald Trump and Chinese president Xi Jinping agreed to contain their trade war with a halt on new tariffs for 90 days.

Khalid Hashim, managing director of Precious Shipping, observed: “If indeed there is a settlement within 90 days in which China agrees, as they have often indicated, that they would reduce the trade deficit by $200-250bn, then it would be great news for shipping.

“Grain, coal and oil/gas are the three raw materials that the US can export in large quantities and which China can easily import in equally large quantities. Currently China imports a lot of coal from Indonesia which is barely six days away as against the US which is about 42 days away and that could result in a huge tonne-mile increase in demand for dry bulk shipping,” Hashim said.

Read more: More scrapping needed for dry bulk: Precious Shipping

Even then, Fitch continues to see the risk of a material reduction of overall demand and rates to stay low.

“This is because commodity trade flows are likely to shift, rather than stop. For example, Chinese tariffs on US grain imports caused an increase in South American exports to China, while US soybeans have been directed to European and Middle Eastern markets,” Fitch noted.

The fundamentals of the dry bulk market, however, have improved due to better capacity management by shipping companies, Fitch added.

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