Is the trade war between the United States and China dead? This is certainly the case for US agricultural exporters, although the surge in demand raises the specter of soaring bulk shipping costs. In fact, shipowners benefit in a way from a raw materials supercycle which drives up both the prices of raw materials and the profits of shipowners.

Global bulk transport demand in the first four months of 2021 hit a record 1.69 billion tonnes, up 6.1% from the same period last year, according to the shipping association. Bimco. It’s not difficult to identify what triggered demand: commodity prices are approaching, and in some cases exceeding, historic highs. The import price of iron ore from China, for example, recently exceeded $ 200 per tonne for the first time, while Australian coal prices topped $ 100 per tonne earlier this year, still in below the peak of $ 180 per tonne reached by miners in mid-2008, but more than double the lows of mid-2020. U.S. corn and soybean prices in the spring came close to record highs set in the terrible drought of 2012 that devastated production.

“Demand has been supported by government stimulus plans and the continued, albeit unstable, recovery of the global economy from the worst effects of COVID-19 lockdowns,” said shipping analyst MSI.

The result of all of this has been much higher rates for shippers and healthy results for ship owners. Capesize’s profits in May stood at a daily average of $ 36,536, more than nine times higher than in May 2020. The rest of the market also delivered strong profits for owners and operators, noted Bimco, with panamax profits of $ 24,903 per day supramaxes $ 27,430 per day on May 26.

“Just as freight rates are on the rise for all sizes of vessels, so has the appetite for freight transportation increased across the board,” said Peter Sand, chief shipping analyst at Bimco. “The Supramax are the biggest winners, with demand for them up 10.6% in the first four months of this year, compared to 2020.”

During the same period, the demand for capesize increased by 6% and the demand for Panamax increased slightly by 1.5%.

The booming grain trade

Grain shipments play more than their role in the commodity supercycle, with demand for bulk carrier capacity from the United States and Brazil driving up freight and charter rates in sub-capesize marine markets.

“The increase in grain trade has been one of the main reasons for the ongoing ongoing recovery in the dry bulk market, particularly among small bulk carriers,” said Rahul Sharan, senior analyst at Drewry.

All of this is clearly reflected in the IGC’s Grains and Oilseeds Freight Index, which hit 200 at the end of the first week of June, down from just 80 at the same time in 2020. On June 8 of this year, the IGC sub-indices for the United States, Black Sea, Australia and Brazil increased by 115%, 168%, 143% and 140% respectively compared to the previous year.

The same trends were seen on the Baltic Exchange dry bulk indices. The BDI was only 520 at the start of June 2020; a year later it was 2568. During the same period, the BPI and BHSI increased from 777 and 274 to 2801 and 1339, respectively.

Sharan thinks there are two key elements in the history of grain transportation. First, an increase in grain tonne-miles this year due to geographic supply patterns has sucked up the capacity of underlays.

“There has been more trade over long distances, especially from the Gulf of the United States to the Far East and also between South America and Asia,” he told World Grain.

Second, a significant increase in congestion at grain ports in South America, particularly Brazil, has added additional enthusiasm to increases in freight rates in the early months of this year.

“On a similar note, stopovers and waiting days at unloading ports in China have recently increased, reducing supply in the Pacific, limiting any sharp drop in freight rates,” Sharan said.

He predicted that rates will remain high throughout the third quarter.

“Soy is a winter crop, and it’s winter already in Brazil,” he said. “The soybean season will remain active for the next two to three months. However, we expect rates to come down in the fourth quarter of this year. “

Sand said Cereals of the world there were good reasons to believe that world grain traffic would remain strong in the third quarter.

“Brazilian soybean exports tend to peak in May, although exports remain high in June, before declining throughout the second half of the year,” he said. “So that will continue to provide some support in the weeks to come, but will then start to decline, leaving a slight lull during the summer months before the US season kicks off afterwards.”

The United States, of course, is poised for a record year of agricultural sales, not least because the trade war between the United States and China lost some of its venom after a trade deal was struck early in the United States. 2020. This is expected to help US farmers ship a record $ 37.2 billion worth of agricultural products to China this year, according to the US Department of Agriculture (USDA). Sales of soybeans, corn, wheat and poultry are leading the way.

Sand is also optimistic about the outlook for US agricultural exports.

“The International Grains Council predicts that next season the United States will export 56.8 million tonnes of soybeans, down 8.5% from the current season when they expect that exports total 62.1 million tonnes, “he said. “At the end of May, 57.5 million tonnes had been exported. Excluding the current season, if exports reach 56.8 million tonnes next season, that would be the highest total exports since the 2017-18 season.

Demand from China also looks healthy.

“It looks like the pig herd has been rebuilt to pre-slaughter levels,” Sand said. “The slaughter allowed the Chinese to move pig farming from individual ranchers with a few pigs in their backyards to huge herds of pigs in multi-story buildings. These seem to have a higher grain diet because food waste has been eliminated. “

However, while the demand for shipping from the United States and South America remains strong, the situation is different in the Black Sea.

“Black Sea grain exports actually fell in the first five months of this year compared to 2020, from 36.2 million tonnes to 24.1 million tonnes,” Sand said. “In fact, exports so far this year have been the weakest since the start of 2016.”

Australia, on the other hand, saw strong growth in its grain exports, up 83.5% in the January-April period of this year compared to 2020, with exports totaling 14.9 million tonnes. This despite an almost 40% drop in grain exports to China, which fell from 1.6 million tonnes in January-April 2020 to just under one million tonnes in the first four months of this year. year.

“To make up for this loss, there was strong growth in exports to Indonesia (up 154.7% to 1.7 million tonnes), and apparently out of nowhere Australia went from no export no grains to Saudi Arabia in the first four months of the year since 2018, with a sudden export of 2 million tonnes, making Saudi Arabia the top destination for Australian grains so far this year Sand said.

There is not much on the supply side of ships to suggest that freight rates will drop anytime soon. Although there has been a sustained trade in used vessels this year as owners and operators rush to take advantage of the surge in demand, Bimco noted in May that during the year to To date, only 92 vessels have been ordered, compared to 111 during the same period of 2020. Panamax vessels were the most popular option with 44 orders. Of the 30.1 million DWTs expected to be delivered this year, only 16 million DWTs had arrived by the end of May, against demolitions of 4.2 million DWTs.

“This leaves the fleet at 923.9 million DWT, 1.3% more than at the start of the year,” said Sand. “Over the year as a whole, Bimco expects the fleet to grow by 2.4%, with demolitions likely to reach around 9 million DWT. It will be the slowest fleet growth since 2016. ”

For shippers hoping for lower shipping costs, there are some optimistic signs, however. In addition to a strong demand for bulk carriers and an increased need for long-haul deliveries, logistical bottlenecks have prevented the optimal deployment of the global fleet in recent months. This is mainly due to a geographically uneven economic recovery, port congestion and COVID-19 outbreaks among crews, which are forcing some ships to quarantine.

However, as some of these disruptive factors are removed, MSI believes the markets may weaken.

“There is growing evidence that port congestion is decreasing, especially in Brazil and China, after absorbing significant amounts of tonnage during the first quarter of the year,” Sand said. “It would remove important support for the market. Meanwhile, the direction of trade will depend heavily on China’s responses to rising inflation and potentially overheating economic growth. “