Overcapacity leads to a pessimistic outlook for the new ship market

Dry bulk carriers: Supply and demand are relatively balanced, and the new ship market is expected to usher in a weak recovery

Dry bulk freight market outlook: in 2023, the transport capacity and demand will grow at a low speed, and the growth rate of supply and demand will be basically balanced

Global seaborne demand for dry bulk cargo is strongly correlated with global industrial performance, with China being the key driver. The process of global industrialization has provided a major increase in economic growth, and has greatly promoted the growth of dry bulk cargoes such as iron ore and coal. As the world's second largest economy and largest infrastructure power, China dominates the dry bulk shipping sector. According to Clarksons, China's imports will account for nearly 40 per cent of the global dry bulk market in 2022 in terms of tonny-nautical miles. Under the expectation of economic recession in the United States and Europe in 2023, the recovery process of China's economy is expected to be a key factor in determining the outlook of global dry bulk trade. According to the forecast of the International Monetary Fund, China's GDP growth rate in 2023-2024 will be 4.4% and 4.5%, respectively, which is significantly stronger than the growth rate of the global economy of 1.0% and 1.2%. Clarksons predicts that benefiting from the strong recovery of the Chinese market, the growth rate of global dry bulk cargo seaborne turnover in 2023-2024 will be 1.6% and 2.0%, respectively.

Orders for new ships on hand are at a historic low, and future capacity growth will be weak. The strong recovery of the international dry bulk shipping market in 2021 is mainly due to the demand support brought by the sustained recovery of China's economy at the beginning of the year, as well as the return of high economic and industrial manufacturing production in overseas countries, which greatly boosted the demand for bulk cargo, during which soaring commodity prices, epidemic control and increased ship arrivals affected the turnover of effective shipping capacity. Once caused a serious imbalance in regional supply, market freight and rent rising sentiment, but the fourth quarter by China's limited production and electricity and real estate and other downstream demand decline and other volatile changes fell rapidly. The brief upturn in the cycle from February to October 2021 did not lead to more profits for shippers, with weak growth in new ship orders in 2021 and shippers' concerns about economic growth and alternative fuels dominating sentiment in 2022, with new ship contract orders of just 5.2 million revised gross tonnes, a nearly six-year low. According to Clarksons data, as of December 2022, shipbuilders had 16.7 million revised gross tons on hand, accounting for 7.2% of existing capacity, which is at a near 30-year low.

The drop in spot earnings and the IMO's environmental policy of decarbonization are expected to promote the recovery of old ship dismantling volume. The upward cycle of bulk carrier rates in 2021 has delayed the dismantling of older vessels, while the relative health of the ship age structure and the concern about the lack of future capacity growth have also damped the demand for shipbreaking by shipowners. As of December 2022, the immediate earnings of dry bulk carriers have fallen by nearly 64% from their peak, and the environmental conventions introduced by the IMO on the existing ship Energy Efficiency Index (EEXI) and carbon Emission Intensity Index (CII) have been implemented, and we expect that the volume of dismantled old ships is expected to rebound in 2023.

It is expected that the supply and demand of the global dry bulk shipping market will be relatively balanced in 2023. Despite the strong operation of the dry bulk market in 2021, under the continuous strengthening of environmental regulations, shipowners are more wait-and-see, and new ship orders are more cautious; The market downturn in 2022 also caused new ship orders to hit a six-year low. At present, the proportion of orders held by shipyards remains low. At the same time, the current shipbuilding capacity is tight, and the orders of container and LNG ships occupy the main berth schedule of shipyards. It is expected that the delivery capacity will remain low from 2023 to 2024. The market will benefit from low capacity growth (we forecast dry bulk shipping effective capacity growth of 2.9% and 3.5% respectively in 2023-2024), and demand will benefit from China's economic recovery and will still grow slightly (we forecast dry bulk turnover growth of 1.6% and 2.0% respectively in 2023-2024). The growth rate of supply and demand is basically balanced, and freight rates will tend to be stable.

Dry bulk carrier market outlook: Freight rates tend to be stable coupled with the landing of environmental protection conventions is expected to drive the weak recovery of the ship market

The dry bulk carrier market is expected to usher in a weak recovery in 2023, and new ship orders are expected to increase slightly. In 2022, the rapid decline in dry bulk freight rates and the high price of new ships greatly weakened the willingness of shipowners to buy new ships, and the new orders of dry bulk cargo ships in 2022 hit a new low in nearly six years. We expect that the capacity and demand of the dry bulk cargo market will grow at a low speed in 2023, and the market supply and demand will be balanced. At the same time, due to shipowners' concerns about environmental protection policies and the uncertainty of alternative fuels in recent years, shipowners hold a wait-and-see attitude towards the purchase of new ships. The landing of EEXI and CII environmental protection conventions in 2023 is expected to stimulate shipowners' demand for ship replacement. In addition, the centralized delivery of container ships to shipyards will release the capacity of new ships. We believe that 2023 dry bulk carrier market is expected to usher in a weak recovery.