Cement Energy Environment

91 Dry bulk vessels are such vessels which carry iron ore, coal, grain, cement, clinkers and many other similar commodities. An increase in charter rates or hire rates will eventually mean an increasing cost of shipping dry bulk commodities including cement and clinkers. However, cement and clinkers form a small fraction of total dry bulk commodities. Iron ore and coal are the largest traded commodities followed by grain, soybean, bauxite, steel products and forest products. The global dry bulk trade was more than four billion tonnes while that of cement and clinkers put together was less than 200 million tonnes forming less than 5% of total dry bulk trade. Hence, it is important to watch the development of all key factors which could influence the overall charter rates. The total landed cost of all dry bulk commodities, including cement and clinkers, significantly gets impacted by any change in charter rates. The major reasons behind our forecast of increasing charter rates are rebound in global construction and manufacturing activities and a robust grain production in many key grain exporting regions. The manufacturing and construction activity has begun expanding as fiscal stimulus and recovery packages such as Euro 750 billion Next Generation EU (NGEU) has been helping rebuild the recession-hit economies. In China, the activity is already rising as reflected in the country’s Purchasing Manager’s Index which stayed above 50 points for past one year. Improving activity will support crude steel production and drive up the imports of iron ore to Europe and Asia. China has the largest influence on the dry bulk market as it is the largest importer of many dry bulk commodities including iron ore. Amid its rising domestic steel consumption and low iron ore inventories at ports, Chinese annual iron ore imports are expected to rise by 4% in 2021 following a rise of 6.9% in 2020. The aftermath of a Brazilian dam disaster in early-2019 and subsequent iron ore supply crunch in the global market, the iron ore inventories at Chinese ports declined steeply. Strong iron ore imports in 2020 assisted in the partial recovery of port inventories which reached 124.5 million tonnes by the end of the year. Nonetheless, its inventory is still lower than a couple of years ago, implying that the traders will require to raise imports of the commodity in 2021 for inventory rebuilding besides importing the commodity for crude steel production. More importantly, the iron ore trade will rise steeply on Brazil-China route over the next couple of years. Worsening relations between China and Australia has not impacted iron ore shipments on Australia-China route yet but it will eventually prompt Chinese traders to look for alternatives. Average haulage distance between Brazil-China is more than twice of that between Australia-China, therefore, any shift in China’s import away from Australia to Brazil will add to tonne-mile demand and lift demand for dry bulk vessels increasing charter rates. Similarly, the non-coking coal trade will also expand significantly this year, by close to 4% in 2021 due to the recovery in non-coking coal imports to Europe and Asia. Non coking coal is used, primarily, in thermal electricity generation and cement production. The imports of non- coking coal plummeted in 2020 because the slowdown in industrial operations and closure of offices on account of lockdowns and travel restrictions squeezed the demand for power. As economic activity is slated to bounce back in 2021, the increase in energy demand will drive up the trade of non-coking coal. Some of the major importers such as the EU, Japan and South Korea where non-coking imports had been receding owing to their planned and faster switch towards non- fossil fuel-based power generation over past few years, would also increase their imports of coal in 2021 as the increase in demand for power is expected to outgrow their growth of power generation using renewable sources. Meanwhile, thanks to an expansion in cultivation area and ample rainfall, Australia is set to have its strong wheat harvest, which will likely to be double than last season. Over the last couple of years, Australia’s wheat harvest was struggling due to the adverse weather conditions in some of the major wheat-growing regions like New South Wales. An increase in Australia’s grain exports, particularly to farther destinations such as Saudi Arabia will provide additional employment opportunities to smaller dry bulk vessels. Brazil is expected to harvest record high soybean production this season, which will lead to increased exports. Improved yields on account of favourable weather conditions during growing period in tandem with expanding area under cultivation supported its soybean production. Strengthening Brazilian soybean exports will lift mid-sized dry bulk vessels’ employment.