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Dry bulk shipping being served ‘toxic cocktail’ in 2020

As the dry bulk shipping market lingers at some of its lowest levels in decades Bimco analyst Peter Sand warns it is being served a toxic cocktail of a drop in demand and overcapacity of supply.

Bimco’s latest dry bulk market report highlighted that the Baltic Dry Index (BDI) was now hovering at some of its lowest levels in the last 20 years sitting at just 520 points on 1 June.

“The dry bulk market depends on global economic growth and with the current prospect of declining demand in 2020, the dry bulk outlook remains lacklustre for the rest of the year. The movements of the Baltic Dry Index in 2020, hovering at unusually low levels in June, underscores just how challenged the market is,” said Sand, Bimco’s chief shipping analyst.

While the market has not yet tested the all-time low BDI of 291 points in February 2016 the report warns that dry bulk shipping is facing a combination of the plunge in demand seen in 2009 with the global economic crisis, combined with oversupply which characterised the market in 2016.

As result the report said the dry bulk market this year had been served a “toxic cocktail of the worst of both worlds”. While in 2009 there was a huge drop in demand, a relatively balanced demand – supply situation meant the market remained largely profitable.

“The dry bulk market is currently experiencing conditions seen in previous years of hardship. However, the conditions this time around also differ. With falling demand in 2020 and challenging fleet growth in recent years, the cards seem to be stacked against a year of profitability,” Sand said.

A massive economic stimulus package from the Chinese government could save the dry bulk market in 2020 but Sand is not optimistic on this transpiring.

“In the years following the global financial crisis, Chinese economic stimulus was the saving grace for the dry bulk market, but several factors are currently suggesting that 2020 will not unfold along the same lines. The dry bulk market is likely to recover gradually and at a slow pace alongside the global economy, but losses from the first half of the year will be difficult to recoup, even with a large-scale rollout of stimulus,” he said.

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