Dry Bulk Market: Chinese Economy’s Figures Bode Well for A Sustained Recovery in the Dry Bulk Segment

Ship owners in the dry bulk market have seen the market’s fundamentals looking rosier, after the latest patch of data from the Chinese powerhouse, which is still the main driver of the bulk segment, in terms of demand. In its latest weekly report, shipbroker Allied Shipbroking noted that “China’s economy has boosted optimism in the market as its recently announced GDP growth for the second quarter of the year exceeded expectations. Its economy expanded by 6.9% from a year earlier, beating expectations for a growth rate of 6.8% and matching the growth rate recorded in the first quarter of the year. This figure has been further supported by the rise in industrial output by 7.6% in June against a year earlier and a rise in retail sales and fixed-asset investments of 11% and 8.6% respectively”.

According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, with all these beating expectations and helping support a rate up to now, which is significantly higher than the full year economic growth target of 6.5% set out by China’s government, we have seen a renewed optimism for commodity exporters and miners, while also boosting confidence as to the market prospects for dry bulker shippers, given that the trade for dry bulk commodities is still mainly driven by Chinese demand. At the same time and despite this boost in optimism there are still voiced concerns in terms of the rising debt, overcapacity in several manufacturing sectors and the emergence of a possible bubble in the property sector”.

Lazaridis added that “given that most of the boost witnessed in the first half of the year has been mainly attributed to gains in all these three areas, there is a fear that their importance and role in bringing a potential reversal in fortunes for China’s economy has also grown significantly. As such there are still cautions being voiced as to the prospects of a potential slowdown in the second half of the year. For the time being however these are just voiced concerns, while it seems that given the recent trends China’s growth figure has become more robust and sustainable, especially as its consumer confidence and purchasing power in its home market has grown”.

As a result, “these boosts have been heavily reflected thus far in the performance of the dry bulk freight market during the same time period, with rates having shown a fair recovery compared to the daily earnings we had been witnessing a year back. Given the that China’s economic performance still plays an immensely significant role on the dry bulk market, with a fair share of the seaborne trade of dry bulk commodities still driven by Chinese demand, all eyes are heavily set on China so as to be able to get a sense of if we are really on a recovery path or not”, Allied’s analyst said.

:At the same time the growth in the fleet has been kept under check during the first 6 months of the year, helping further improve the demand-supply balance in the market and support the improvement in freight rates that has been recorded thus far. Given that most have started to feel that this improved performance in China’s economy could help boost commodity exporters while also provide a stronger global consumer base from where other emerging markets can drive their own manufacturing and investment boom. Given that we have seen another rally take place in freight rates in the midst of the summer lull period, and that most still hold high expectations as to the market performance in the final quarter of the year, it would be to no surprise if we witnessed another rally in the secondhand market as buyers start flock back with even higher expectations of future earnings, driving in turn competition and another rally in asset prices. There has already been some slight indication of renewed buying interest, while it may well turn out that August will be a fairly busy month even when compared to previous years”, Lazaridis concluded.