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Sunday, December 3, 2023

MSI: Dry Bulk Trade Volumes Positive but Prospects Hold Downside Risks

Maritime Activity Reports, Inc.

September 21, 2023

 Plamen Natzkoff, Associate Director, Dry Bulk Commodities, MSI - Credit: MSI

Plamen Natzkoff, Associate Director, Dry Bulk Commodities, MSI - Credit: MSI

According to Maritime Strategies International, the unwinding of supply chain inefficiencies and rising vessel orders are expected to dampen positive deadweight demand in the dry bulk market.

COVID-related supply chain inefficiencies and associated port congestion have almost fully unwound, and while the MSI outlook on the prospects for trade volumes this year is considered positive, growth in actual dwt demand is limited to only 0.25% year on year.

MSI’s Q3 Dry Bulk market report notes that while this quarter’s demand forecasts for 2023 are higher by 1m dwt, its fleet supply estimates climb by 2.2m dwt, leading to slight downward revisions in utilization rates and earnings.

In line with MSI’s forecast for the relative strength in trade volumes to continue into next year, it expects vessel demand to increase by 14m dwt in 2024.

This represents an increase of 7.3m dwt in required tonnage from the previous MSI Base Case forecast and reflects the higher trade volumes anticipated as an expected eventual recovery in both China’s and Europe’s industrial activity comes to fruition.

However, the impact on the market will be muted as MSI raises its forecast for available fleet supply by 14m dwt year-on-year on the back of increased contracting and lower-than-expected scrapping activity.

The improved outlook expected over the medium term in MSI’s Base Case is also underpinned by a low orderbook and relatively low contracting activity, both of which are now coming under threat.

Contracting for new vessels picked up in Q2 2023 as owners continued to upgrade their fleets with modern tonnage in anticipation of increasingly stringent environmental regulations ahead. Newbuilding orders totaled 6.5m dwt in Q2 2023, bringing total contracting in the first half of 2023 to an aggregate 14.1m dwt.

“Given the positive direction of trade volumes in 2023, owners could be excused for feeling disappointed in the evolution of the freight market, where vessel earnings have languished,” said Plamen Natzkoff, Associate Director, Dry Bulk Commodities, MSI. “With trade volumes forecast to expand, the fact that freight rates have not responded accordingly is highly instructive to the state of underlying market balances.”


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