Despite ongoing global economic risks, demand for bulk commodities is expected to rise throughout the rest of the year and well into 2023. The market has been in turmoil since the Covid-19 outbreak, according to Niels Rasmussen, chief shipping analyst for the international shipping group Bimco. While the pandemic is far from done, additional concerns like the war in Ukraine and continued congestion have only compounded the uncertainty. “Any shift in congestion – either up or down – could have a major impact on market conditions,” he said during an online event. “There are also plenty of risks to cargo demand, and if they materialise, they could lead to an adverse development in both the supply/demand balance and rates and prices of bulk commodities.”

Rasmussen is optimistic that demand growth in 2022 would match or not be far behind Bimco’s estimated supply growth. The average tonne miles for coal and grains should rise the rest of the year, and China’s recovery could boost demand. Our current projection for 2023 calls for greater demand growth as both inflation and commodity prices are anticipated to decline.

Low Demand Out of China Hurt the BDI

The Baltic Exchange Dry Index (BDI), which had dropped to barely 1 302 points earlier this year, had been harmed by the poor demand from China in the first half of the year. Since then, the market has begun to show signs of recovery, helped by Brazilian shipments that increased as a result of some significant rains and the lifting of Indonesia’s coal export embargo, which raised the BDI once more.

Rasmussen believes that the bulk industry was greatly damaged by Russia’s invasion of Ukraine, which brought about a rise in expensive freight costs. “Charter rates have followed along the same path, and prices for ships that are five years old are quickly approaching the level of newbuilding prices. There has been a consistent increase in time charter rates and second-hand prices.”

Meanwhile, he explained that newbuilding contracting had virtually ceased during the first half of this year. The order book has shrunk to a new low of 6.6% of the trading fleet. However, newbuilding prices have continued to rise due to heavy contracting of container and LNG ships, though the rate of increase is now slowing.

Congestion Remains an Issue 

This year, congestion remained a problem in all shipping sectors. More ships have consistently been delayed for a longer period of time than in 2021. This naturally increases supply chain inefficiency and reduces effective supply. Though since China accounted for approximately 35% of global cargo demand, developments in the country needed to be closely monitored on a continuous basis. Strict zero-Covid policies and extended lockdowns have resulted in a significant decrease in demand for coal and iron ore.

The growth of iron ore has already slowed by 2.1%. Another product that has suffered significantly from the Russia/Ukraine war was grain, which had an 8% drop from last year.

The International Monetary Fund (IMF) scaled back its estimates for global GDP growth to 3.6% in 2022 and 3.6% in 2023, which affected forecasts for all key bulk commodity importers.