Dry Bulk Shipping Demand to Fall in 2024

In our base case scenario, we expect global dry bulk cargo volume to grow between 1.5% and 2.5% in 2023 and between 1% and 2% in 2024.

Average haul is expected to increase between 0.5% and 1.5% in 2023, driven by sanctions on Russian coal and higher iron ore and grain shipments from Brazil.

In July, the IMF forecast the global economy to grow by 3% in both 2023 and 2024. This is a slight improvement over their previous forecast, but still well below the 3.7% average annual growth seen in the 2010s. Inflation remains a key challenge in several economies, forcing central banks to increase interest rates, slowing down economic growth.

The IMF forecast GDP in China to grow by 5.2% in 2023 and 4.5% in 2024, above the Chinese government’s target of 5% for 2023. Since June economic conditions in China, however, began to deteriorate, giving rise to concerns. Several banks have cut their forecasts to below the government target, Barclays going as low as 4.5%.

China’s economy is plagued by a real estate crisis, high youth unemployment, deflation, and low consumer spending. This, alongside weaker exports due to worse economic conditions abroad, caused the Caixin manufacturing PMI to fall into contraction territory in July. To aid the Chinese economy, the government has announced support measures and lowered interest rates further. However, it is yet unclear whether this stimulus will be enough to halt the economic slowdown. In a low scenario where the government’s stimulus is ineffective, we forecast dry bulk demand to grow by 0.5 percentage points less than in our base case in 2023 and 1 percentage points less in 2024.

A more positive demand scenario could occur if China were to substantially increase economic stimulus. However, given China’s high debt after years of boosting public spending, we consider such a scenario unlikely.

We estimate global iron ore shipments to grow between 2.5% and 3.5% in 2023 and between 1% and 2% in 2024. So far this year, steel production has increased 3.5% in China, driven by higher steel exports, and causing a small build-up in steel inventories. Domestic steel demand has remained weak, as an increase in demand from manufacturing and infrastructure was not enough to make up for a dwindling volume of new real estate projects. Chinese domestic steel demand could fall further during the rest of 2023 and in 2024 if construction activity continues to weaken.

This year, iron ore import demand in China has outpaced steel production. Between January and July, Chinese iron ore imports grew 6.9% but iron ore inventories in Chinese ports declined. The production of new steel increased, as the availability of scrap steel in China diminished due to weaker construction activity. Over the second half of 2023, some iron ore inventory rebuilding may occur in China, thus supporting capesize ships.

Global steel production excluding China fell 3.3% y/y between January and July, limiting growth in iron ore shipments. Production in steel exporting countries such as Japan and South Korea dropped amid lower import demand from China and higher competition from Chinese steel exports. Furthermore, steel production in Europe continued to struggle due to high energy prices and low domestic demand.

In our base case, we estimate coal shipments to grow between 4% and 5% in 2023 and to fall between 1% and 3% in 2024. According to the International Energy Agency, global coal demand could rise 0.4% in 2023, reaching a new peak, before falling 0.1% in 2024. For advanced economies in 2024, the agency expects coal demand to decline faster than it increases in China, India, and Southeast Asia combined. Up until now in 2023, China has driven the increase in global coal shipments. Strong economic growth at the start of the year followed by heatwaves in the late spring and summer have caused fossil fuel electricity production to rise 5.3% y/y. However, coal inventories have increased amid both higher imports and mining. As such, coal shipments into China could grow at a slower rate in the second half of 2023. In 2024, China’s coal imports may continue to grow, since prices for imported coal are lower than for domestically mined coal. Safety concerns in some coal mines in China have also emerged, which could limit growth in domestic mining.

The outlook for India, the second largest coal importer, also remains uncertain. So far in 2023, higher coal mining has caused imports to fall, even as electricity demand has increased. If India continues to successfully boost domestic supplies, it could accelerate the decline in global coal shipments in 2024.

Based on estimates from the United States Department of Agriculture, we estimate grain shipments to fall between 1.5% and 2.5% in 2023 and to recover between 3% and 4% in 2024. In 2023, maize exports are expected to drop 12.4% before growing 11.1% in 2024, as exports from Argentina and the United States recover. Soybean exports are estimated to grow by 10.2% in 2023 and by 4.3% in 2024.

Volumes of wheat and other smaller grains are expected to marginally decline in both years amid limited supplies. The war in Ukraine will result in another year where yields from the grain harvests in Ukraine decline. The movement of Black Sea grains has also become more challenging since the end of the grain agreement, although negotiations for alternative solutions are ongoing. In India, restrictions on rice exports, including a ban on non-basmati rice exports starting in July are further tightening global grain supplies.

Lastly, we expect minor bulk shipments to grow between 0.5% and 1.5% in 2023 and between 2% and 4% in 2024. Since the second half of 2022, minor bulk shipments have come under pressure from weaker global economic conditions. In recent months, however, volumes have started to strengthen.

Minor ore shipments have increased due to due to increased production of aluminium and manufacturing of cars. Fertilizer prices have gradually fallen since the start of the war in Ukraine and demand could start to recover. If China’s economy significantly weakens during the second half of 2023, a more negative minor bulk demand outlook could ensue.
Source: BIMCO , https://www.bimco.org/news/market_analysis/2023/20230905-smoo-bulk