Whisper it softly but there’s some real data behind this optimism

Although far from the dizzy days of 2008, it seems shipping, especially dry bulk, is truly on the up

Global stock markets are at record highs, the Baltic Dry Index (BDI) keeps driving upwards and the political risk around Trump fades. What’s not to like? Throw in high scrapping rates and historically low yard deliveries, and the shipping markets look in much better shape.

The depleted dry bulk sector is particularly enjoying the comeback, with owners seeing 60% increases even in period charters.

Compared with the BDI hitting the 12,000-point mark in the heady days before the 2008 financial crash, it is small beer, you could argue.

But we must surely celebrate the dry index teetering on 1,400 this week, around 70% up on the start of the year and a major recovery from the 290-point depths plumbed in February 2016.

The improving situation comes from a variety of sources, not least a big pickup in demand for bulkers carrying iron ore and coal.

India is responsible for much of the shipping optimism, with its hungry steel industry gobbling higher-­quality coking coal from Australia and elsewhere.

Figures from the World Steel Association show the country’s plants are producing almost 10% more than a year ago.

Indian steel mills expect their output to double to 240 million tonnes a year within little more than a decade — the result of rapid modernisation and urbanisation in this country of 1.28 billion people.

China’s economy, for so long the mainstay of the global recovery and an important factor in the past behind that 12,000-point BDI spike, has also been ­increasing imports of raw materials again, partly ­because decisions to cut back on local coal production led to shortages.

And despite endless speculation about a serious slowdown in the Chinese economy, fears about mounting debt and industrial overcapacity there, any bubble has refused to burst.

In fact there are still reasonable hopes that China will actually reverse its recent downward growth trend.

a6d11a34498ece9723639d1dd2376c4e Sparks fly as employees cut steel slabs at a mill in eastern India  Photo: Bloomberg

The government had pencilled in a 6.5% increase in gross domestic product but a figure of 6.9% was achieved in the second quarter.

The National Bureau of Statistics of China says the 6.9% figure shows the economy has become “more stable, co-ordinated and sustainable”. But it warns “there are still many unstable and uncertain factors abroad, and long-term structural contradictions remain prominent at home”.

There is also renewed optimism around the European economies, with 2.3% annualised growth, slightly better than even the 2.2% expected for the US.

Fears that Donald Trump’s America First approach would put a brake on globalisation are receding amid signs of a new presidential pragmatism.

North Korea remains a potential geopolitical if not military flashpoint, but another positive factor is there is no sign that central banks are ready quite yet to turn off the cheap credit provided by low interest rates.

So bulker owners can get on with enjoying the better times, with capesizes in particular in much warmer waters. These are just the conditions that newcomers not encumbered by previous debt and losses were hoping for.

"These are just the conditions that newcomers not encumbered by previous debt and losses were hoping for"

Herman Billung, ex-Golden Ocean boss and now chief executive of upstart Songa Bulk, may be talking up his own book but is still predicting a potential 50% rise in the price of vessels by the end of 2018. Even if there is significant growth in new orders, it would not undermine a major recovery through 2019, he argues.

In fact orders are building fast, but from a very low base. Clarksons estimates that 195 new bulkers have been ordered this year — almost four times more than in 2016.

It is not just new bulk operations that are snapping up tonnage. Golden Ocean spent $360m buying out the Quintana Shipping fleet in March, an example of John Fredriksen’s optimism about the sector’s future.

Golden Ocean still believes things are set fair, probably through to 2020, for bulk, not least because new environmental regulations will encourage owners to scrap more ships.

One can always worry about all manner of things, including super-negative “black swan” events, but for the moment I prefer the exuberance of Navios, which says “everything is flashing green”.

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