World Grain - July 2022 - 34

FEATURE: NAVIGATING TURBULENT WATERS
Baltic indices: Grain and oilseeds carrying sectors
Rebased, 18 May 2021=100
220
200
180
160
140
120
100
80
60
40
May 21
IGC GOFI
Baltic dry index
Jul 21
Sep 21
Nov 21
ZCS rather than headline COVID caseloads, the easing
of some lockdowns or monthly activity data. "
BDI volatility
The volatile nature of the world over the last two years
has been reflected in shipping prices. The Baltic Dry
Index in mid-May 2020 was below 500 as COVID-19
began its global spread. A year later it had passed the
3,000-mark before further spiking to hit a peak of 5,647
in October last year. It then slumped before climbing
once more when Russia invaded Ukraine in late
February, passing over 3,000 points from May onwards.
On May 24, the IGC's Grains and Oilseed Freight
Index (GOFI) had climbed to 237 points, up 31% yearon-year
and from just 109 points in November 2020.
Volatile and inflationary bulk carrier shipping rates
have reflected the forces bucking the commodity markets
and the grain trade. With little sign of this disruption
dissipating, but many economic indicators turning
bearish, analysts are divided on what happens next.
" Although there is some downside potential amid
risks of a slowdown in global economic growth - or
a recession - freight prices are expected to remain at
an elevated level due to potentially inflated bunker and
crude oil prices, " Alex Karavaytsev, senior economist
at the IGC, told World Grain. " Generally increasing
tonne-mile vessel demand, including in the grains and
coal markets, should contribute to overall supply tightness
in the dry bulk sector, which may also continue to
face congestion issues in some areas. In addition, the
new emissions regulation by the International Maritime
Organization (IMO), which will come into force on Nov.
1, is seen potentially leading to a surge in ship retirement
and increased costs of compliance, which could then be
passed on to the market. "
34
Jan 22
Mar 22
May 22
Breakwave, too, expects dry bulk shipping costs to
remain elevated.
" Although the high level of volatility of 2021 might
slow down, the dry bulk sector remains in an upcycle
driven by relatively low growth in supply, strong demand
for bulk commodities, and continuing infrastructure
bottlenecks and supply chain constraints that affect
the whole shipping universe, " noted the analyst. " We
anticipate government actions as it relates to energy
security combined with geopolitical developments to
drive the flows of commodities transported by dry bulk,
and thus, indirectly determine the path of freight rates. "
Shipping contrarian
Slowing economic growth and high commodity prices
might, however, put some downward pressure on dry
bulk carrier costs, according to shipping analyst MSI.
" MSI's freight market outlook is more pessimistic
than the FFA (Forward Freight Agreement) market for
the remainder of this year, " said Will Fray, an MSI director.
" This is most likely down to a difference of view
on the demand outlook - MSI's short-term fleet growth
forecast is benign for the sector, with only marginal
growth in capacity expected from now until the end of
the year. "
This, he said, was linked to very low anticipated ship
deliveries this year, with less than 9 million deadweight
of vessel capacity scheduled to be delivered before 2023.
" MSI's weak demand outlook stems from a combination
of factors, the key drivers being strong domestic
production of bulk commodities in major importers
such as China and India due to high import prices,
coal in particular, and weaker demand linked to rising
inflation, lower investment and COVID lockdowns in
China, " Fray added.
July 2022 / World Grain / World-Grain.com
Source: IGC, Baltic Exchange
http://www.World-Grain.com
World Grain - July 2022

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