Peter Sand - BIMCO Bulletin

Economy

ECONOMY March 2020 SHIPPING MARKET ANALYSIS Use tabs to navigate to pages Macroeconomics Tanker Container Dry bulk Macroeconomics Clear risks to global growth in 2020 Across the world, there are signs that global trade tensions are easing: the US and China have signed “Phase One” of a trade agreement, which – importantly – avoids further escalation of the almost two-year trade war between the two countries (although on the downside, it also leaves most tariffs in place); the new United States -Mexico- Canada deal has passed into law in the US, with only Canada left to approve it; and a hard Brexit was avoided. These developments have helped push global growth projections for 2020 up to 3.3%, from just 2.9% in 2019 – the lowest figure since the global financial crisis. Growth in 2019 was heavily affected by the trade war and is part of the explanation for the percentage point drop in the International Monetary Fund’s (IMF’s) projection for 2018, from 3.9% in its January 2019 World Economic Outlook to the 2.9% in its latest report. coronavirus Peter Sand, Chief Shipping Analyst at BIMCO These projections were published before the coronavirus (COVID-19) outbreak, and BIMCO therefore expects a adjustment downwards in the next update. The longer the outbreak remains uncontained, the larger the expected drop in growth, the knock-on effects of which will be felt by industries across the world. Europe Germany’s Purchasing Managers’ Index hit an 11-month high of 45.3 in January and, although this still represents a reduction in manufacturing activity, it continues a trend of slowing contraction. Export orders for goods have also continued to decline, although in January they posted the smallest fall in more than a year. The downturn is, in particular, being driven by a poorly performing car industry, whereas the rest of the economy is faring better; the German government forecasts growth of 1.1% this year, up from 0.6% in 2019. This higher growth is supported by easing trade tensions, greater government investment and growing domestic demand. Structural changes in the car manufacturing sector, including new emissions standards, have seen producers invest heavily in new technologies on the one hand, while low international demand for German cars has meant production figures falling to 4.7 million – the lowest for more than 20 years, and 9% down on those of 2018. Now the UK has left the EU, the next round of negotiations to determine the future trading relationship between the two entities can start in earnest. The UK government has set a tight deadline for an agreement to be reached by the end of the year, potentially limiting the scope of any deal and harming trade between the two. The IMF forecasts UK growth of 1.4% in 2020 and 1.5% in 2021, but these figures are dependent on a smooth and gradual transition into the country’s new trading relationship with the EU27. In 2018, 45% of total UK exports went to the EU and 53% of imports came from the bloc, so it is clear these negotiations are critical to the UK economy. Growth in France slowed overall in 2019 to 1.2%, with a fall recorded in the Q4 figure, as strikes over pension reform affected transport, investment and manufacturing. Both imports and exports fell, with inventory being used up rather than new goods produced to meet demand. US Real GDP increased by 2.3% in 2019 – a deceleration of growth compared with 2018 (+3.1%) – as the 2017 tax cuts failed to sustain the growth levels the White House had expected. The slowdown comes as a result of lower investment, which fell from growth of 5.1% in 2018 to 1.8% in 2019, in part caused by the trade war with China. More directly, trade has suffered. The year saw little or no growth in goods, with exports up just 0.2% – a similar figure to imports. This compares with 4.3% growth in 2018. The US will hope to see its exports grow in 2020 and 2021, as a result of its “Phase One” agreement with China. The deal sets out a list of commodities that China has agreed to buy more of from the US to reduce its trade surplus with the country. The goods detailed are manufactured, agricultural and energy related, with each sector set to get a boost from increasing exports. However, it may be the case that, instead of total exports increasing, overall volumes of US exports remain static, with the share to China increasing. While this would deliver a boost to shipping because of the longer sailing distances, it could limit the positive impact on highlighted sectors. For its part, the US halved tariffs (from 15% to 7.5%) on USD 112 billion dollars of goods, which were implemented in September 2019, and cancelled tariffs on USD 160 billion of items, scheduled to take effect in December 2019. According to the deal, exports of some items are set to more than double in 2020 and 2021, compared with 2017 figures. There are, however, limits on how much China can boost its imports without growing demand. Some of the extra imports may head straight to government reserves, but BIMCO remains sceptical of China’s ability to increase its imports sufficiently, as well as the US’ ability to deliver. Asia GDP growth in China fell to 6.1% in 2019 – still within the Chinese government’s 6%-6.5% target – after expansion slowed to 6% in the fourth quarter. Economic growth in China has been slowing in recent years, although adding 6% on top of the world’s second-largest economy, still represents a big expansion, a bigger expansion, in fact, in real terms than the higher growth rates of earlier in the decade. BIMCO expects that when the official growth target is announced it will be lower than the 6% the government had been considering before the coronavirus outbreak. The virus also casts further doubt on China achieving its goal of doubling the size of its economy between 2010 and 2020, something that was already looking doubtful. Based on IMF data, China needs growth of 6.2% in 2020 to achieve its stated aim. The extension of the Chinese Lunar New Year holiday in an attempt to limit the spread of the virus, and limits on inter-city travel that prevented workers returning home from holidays in the west of the country, has had a marked impact on the Chinese economy, including its industrial production. The shipping industry has already had to cope with delays in Chinese ports and in other countries as quarantine measures have been imposed. Furthermore, the industry will be hit by lower trading activity in China. The Chinese government will need to initiate far-reaching stimulus measures to counteract the economic effects of the virus once it has been contained. China has already halved tariffs, from 5% to 2.5%, on USD 75 billion worth of imports from the US, originally implemented in September 2019. Other countries in the region, such as Japan and South Korea – both of which saw low growth in 2019, with Japan’s falling by 6.3% in Q4 2019 on an annualised basis – could feel the knock-on effects of the coronavirus crisis. It has the potential to harm both countries’ exports and disrupt supply chains, given the interconnectedness of manufacturing in the region. The Indian economy has experienced a marked slowdown in economic growth. After 6.8% growth in 2018, the IMF estimates that it fell to 4.8% in 2019. The government plans to introduce a range of stimulus measures that the IMF expects to boost growth to 5.8% in 2020. The projection for this year has been revised downwards by 1.2 percentage points between the October 2019 and January 2020 editions of World Economic Outlook, reflecting a slowdown that is more pronounced than expected. Outlook Strengthening global growth could be derailed by a range of factors this year. The coronavirus threatens not only the Chinese economy, but potentially that of the entire world. With factories and offices closed for prolonged periods, it could also affect the “Phase One” agreement between the US and China, especially if China finds itself unable to increase its imports from the US by the amounts detailed in the deal. Compared with 2003, when China was faced with the threat of the SARS virus, its economy has expanded enormously and is much more connected with the rest of the world. Back then, China accounted for just 7% of global imports by volume; by 2019 its share was 22%. Significant disruption to the world’s second-largest economy now has a knock-on effect on the rest of the world, given China’s substantial presence in global trading. Dry bulk and tanker trades are directly affected by a lowering of Chinese demand and, given the importance of Chinese imports, disruptions to these segments will affect the entire market. While demand for containerised exports out of China depends on other countries, the prolonged shutdown in the country’s manufacturing sector limits its ability to meet this demand, thereby harming the containerised shipping sector. The possibility remains of a further escalation in trade tensions. The majority of tariffs between the US and China remain in place and, as we have seen previously, relationships can quickly turn sour. BIMCO believes it is highly unlikely that a deeper trade deal addressing the underlying problems the US has with China, will be negotiated seriously before the US presidential election in November. In addition to the US-China trade war, there are mounting concerns about a potential battle between the US and the EU. France has recently – and narrowly – avoided having tariffs slapped on some of its exports after postponing plans for a digital tax, which would primarily hit the large American tech companies. Other European nations, as well as Canada, are also considering a similar tax and, despite being US allies, could all face retaliatory tariffs. For shipping, the fact that tariffs have become a go-to weapon for the current US administration creates a risk of slowing tonne-mile demand growth. Unless alternative trading partners can be found – which becomes increasingly hard, the more countries on which you impose tariffs – the volumes may be lost completely. This would slow exports of the affected goods and potentially any imports used in their production process. Connect with BIMCO Emily Stausbøll, Shipping Analyst at BIMCO For shipping, the fact that tariffs have become a go- to weapon for the current US administration creates a risk of slowing tonne-mile demand growth The presents a big risk to the 6% growth target Revisions to global petroleum consumption forecast (2020) Thousand barrels per day Coronavirus-related changes to China petroleum consumption (2020) Thousand barrels per day 00 -200 -100 -400 -200 -600 -300 -800 -400 -1,000 -500 -1,200 -600 slower economic growth reductions in other transportation fuels Revisions to consumption: in China in rest of world flight cancellations Source: BIMCO, US Energy Information Administration Anticipated exports based on Phase One agreement in 2020 and 2021 90 80 70 60 50 40 30 20 10 - Manufactured goods 2017 2018 Agriculture 2019 2020A 90 80 70 60 50 40 30 20 10 Energy - 2021A Source: BIMCO, US Census Bureau, MOFCOM 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010-2020F Annual GDP growth rate (RH-axis) 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Chinese GDP growth in constant prices GDP growth Source: BIMCO, IMF Note: Based on data from WEO October 2019. Facebook Twitter Linkedin YouTube Source: © Chappatte in Der Spiegel, Germany www.chappatte.com Photo (top): monsitj / iStock and Danny Cornelissen at www.portpictures.nl 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019F 2020F Billion Yuan Billion USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Growth rate Billion USD Revisions to global petroleum consumption forecast (2020) Thousand barrels per day Coronavirus-related changes to China petroleum consumption (2020) Thousand barrels per day 00 -200 -100 -400 -200 -600 -300 -800 -400 -1,000 -500 -1,200 -600 slower economic growth reductions in other transportation fuels Revisions to consumption: in China in rest of world flight cancellations Source: BIMCO, US Energy Information Administration Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Anticipated exports based on Phase One agreement in 2020 and 2021 90 80 70 60 50 40 30 20 10 - Manufactured goods 2017 2018 Agriculture 2019 2020A 90 80 70 60 50 40 30 20 10 Energy - 2021A Source: BIMCO, US Census Bureau, MOFCOM Billion USD Billion USD 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010-2020F Annual GDP growth rate (RH-axis) 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Chinese GDP growth in constant prices GDP growth Source: BIMCO, IMF Note: Based on data from WEO October 2019. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F Billion Yuan Growth rate ECONOMY March 2020 SHIPPING MARKET ANALYSIS Use tabs to navigate to pages Macroeconomics Tanker Container Dry bulk Tanker shipping Freight rates drop as strong seasonality fades and high fleet growth and coronavirus uncertainty hits High fleet growth in 2019 and the coronavirus in China are clouding the outlook for 2020, despite the expected lower fleet growth. Demand drivers and freight rates Strong winter demand is fading away and has been reflected in falling freight rates. However, because charters are often fixed months in advance, ships with contracts from Q4 2019 are still earning high rates. Moving into the new year, oil product tanker freight rates have fallen, with smaller vessel sizes earning more than larger ones. On 7 February, average earnings for an MR tanker stood at USD 12,531 per day and those for Handysize at USD 19,114 per day. At the other end of the scale, day rates for both LR1 and LR2 tankers have fallen to USD 7,154 and USD 9,573, respectively. Rates for both Long Range tankers peaked in the last week of 2019. Quick Facts Inevitably, crude oil tanker earnings have fallen from the highs at the end of Q4 2019. Positive drivers have faded, including sanctions being lifted on certain Chinese-owned tankers, although rates remain seasonally high in January. Average daily earnings for very large crude carriers (VLCC) were at USD 23,797 per day on 7 February, having dropped from USD 94,286 per day at the start of January. By the beginning of February, Suezmax earnings stood at USD 33,756 per day and Aframax at USD 22,036 per day. High fleet growth in 2019 and the coronavirus in China are clouding the outlook for 2020 Peter Sand, Chief Shipping Analyst at BIMCO Emily Stausbøll, Shipping Analyst at BIMCO Falling rates at the start of the year is typical of the season- dependent oil tanker market. Demand is always strong in Q4, reflecting consumption patterns in the major markets. Demand only begins to fade during the first quarter of the next year, which explains the still-strong tanker freight rates. Another reason behind the decline in earnings is the higher cost of fuel caused by the implementation of the IMO 2020 sulphur cap. As average earnings are reported on a time charter equivalent (TCE) basis, they take fuel costs into account, and as these have risen for all non-scrubber fitted vessels, earnings reported for non-scrubber- fitted ships have dropped. Comparing the difference in earnings between scrubber and non- scrubber fitted VLCCs illustrates this difference. In early January, a scrubber-fitted ship was earning USD 22,300 per day more than a non-scrubber fitted ship (Source: Clarksons), reflecting the savings from continuing to sail on cheaper high-sulphur fuel rather than a premium for the scrubber. Scrubber- fitted vessels have also seen their earnings fall over the course of January, with the difference in earnings between the two vessel types shrinking to USD 11,885 per day. This reflects the drop in the spread between low-sulphur and high- sulphur fuel oil since the start of the year. Chinese crude oil imports continued the strong growth shown throughout 2019, setting a new record. Total imports hit 505.7 million tonnes – up from 461.9 million tonnes in 2018 – or an extra 146 VLCC loads (300,000 DWT). Just under half of total Chinese crude oil imports (44% in 2019) are from the Middle East, with imports growing by 11% in 2019. This figure, however, hides large discrepancies between the Middle Eastern countries, partly because of the sanctions imposed. Imports from Saudi Arabia, China’s largest seaborne supplier, were up 46.9% in 2019, an increase of 26.6 million tonnes. This brought total imports from Saudi Arabia up to 83.3 million tonnes. On the other hand, imports from Iran fell to 14.8 million tonnes, just under half the level reached in 2018. China was originally granted waivers to the US sanctions, allowing it to continue importing crude oil from Iran between November 2018, when sanctions were imposed, and May 2019. Since then, under pressure from the US, China reduced its imports over the course of the second half of 2019. Of the total Chinese crude oil imports from Iran in 2019, 75% came in the first half of the year – an average monthly import of 1.8 million tonnes, compared with the 0.6 million tonne average in the second half. US seaborne crude oil exports have also continued on their record- setting path; total exports reached 133.7 million tonnes, with Asia and Europe the biggest buyers. The boom in US shale oil production and the lifting of the ban on US crude oil exports in December 2015 provided some much-needed tonne miles to the crude oil tanker shipping industry. In 2019, US crude oil exports generated 1,086.6 billion tonne miles, accounting for 10.2% of total seaborne crude oil trade in tonne miles. After facing severe disruption during the trade war, crude oil exports from the US to China may be set to recover this year as a result of the “Phase One” agreement. Taking 2017 as the base year, China has committed to buying an additional USD 18.5 billion of specific energy goods in 2020, with a further USD 33.9 billion over the baseline in 2021. As exports fell lower than the 2017 baseline in 2018 and 2019, the real increase in US exports will have to be higher than the headline figures. Furthermore, because of the lower oil price, volumes of exports will rise more than the value increase suggests. Even if the agreed figures are not reached, any extra trade between the US and China – especially in high-volume energy goods – will bring additional tonne miles to the shipping industry. The higher US- to-China exports may be as a result of trade diversion rather than trade creation: total US exports not rising, but the share of exports to China increasing instead. It may be a similiar case for Chinese imports, with crude oil imports from the rest of the world replaced by imports from the US. This would be the opposite of what happened after the outbreak of the trade war, when US exports to China fell to zero for several months, whereas total exports continued to increase. In 2019, the share of total US exports to China was only 5%, down from 23.3% in 2017. Fleet news BIMCO projects 1.8% crude oil tanker fleet growth in 2020, considerably lower than the 6.2% growth in 2019. The market was awash with new ships in 2019, which had been ordered so that owners could profit from the overly anticipated demand boost from the IMO 2020 sulphur cap. Older ships, which might otherwise have been sent for demolition, were kept around for the same reason. Deliveries in 2019 totalled 29.7 million tonnes, while only 3.5 million tonnes left the market. More than half the delivered tonnage during 2019 came from 68 VLCCs, with an average capacity of 310,000 DWT. The VLCC fleet grew by 8.5% in 2019 and, with a further 10 VLCCs delivered in January 2020, the global fleet now has 814 ships, totalling 250.7 million DWT – the highest-ever in terms of capacity and number. For oil product tankers, the largest ships’ segment also experienced the highest growth in 2019; the LR2 fleet grew by 6.7%, whereas the overall oil product fleet rose by 4.6%. At the opposite end of the spectrum, 26 product tankers were sent to the scrapyards in 2019, the largest of which was a 47,000 DWT MR tanker. BIMCO expects the product tanker fleet to grow by 2% in 2020, with 4.5 million DWT coming to the market and one million DWT leaving it. Outlook The optimism for a seasonally strong Q1 has been eroded by the effects of the coronavirus (COVID-19) and a warm winter in the northern hemisphere. Following the outbreak, the International Energy Agency (IEA) has adjusted its forecast, and now expects global oil demand to fall by 435,000 barrels per day (bpd) in Q1, the first contraction in more than 10 years. Furthermore, it has lowered its 2020 growth forecast to 825,000 bpd, down from 1.2m bpd before the outbreak. US-imposed sanctions on certain Chinese-owned oil tankers – essentially removing them from the market and creating uncertainty – led to the high freight rates. But the sanctions were lifted on 31 January and around 40 tankers, more than half of which are VLCCs, have now returned to the market, adding to the pressure created by the 68 new VLCCs delivered in 2019. But this is not the only reason for unpredictability in the sector. At the time of writing (mid-February), the full effect of the coronavirus outbreak is still impossible to predict. But because of China’s size and importance to the tanker market, any disruptions to its oil trading caused by coronavirus will have a major impact on the tanker market. Demand for oil products will be directly impacted by restrictions on travel – with air, road and rail transportation all affected in some way – as China shuts off cities in an attempt to stop the virus from spreading. Furthermore, the extended Chinese Lunar New Year holiday, which delayed the return to full work of many workplaces, has already lowered utilisation rates of Chinese refineries, thereby reducing its demand for crude throughput. Government-owned Sinopec, Asia’s largest oil refiner, has already announced a 600,000 barrel per day decrease in crude throughput and Bloomberg reports that Chinese crude oil demand has fallen by about 20% overall. The EIA has lowered its forecast for Chinese oil demand in 2020 by 190,000 bdp in its February Short Term Energy Outlook, reflecting the potential fallout from the coronavirus on economic growth, as well as the fall in energy demand from the transportation sector in China. Lower Chinese demand and falling oil prices may lead to OPEC further lowering its oil output, having already agreed to trim production in December 2019. The coronavirus outbreak is also likely to disrupt – at least in the short to medium term – China’s attempts to boost sales of its own low sulphur fuel oil. The Chinese government announced in January that it would apply a tax waiver on exports of the fuel, with a particular focus on increasing sales to its own bunker market. The latter has previously relied heavily upon its neighbours to provide the fuel, given the previously high tax and consumption levies associated with producing and exporting the fuel in China. The coronavirus spread could also derail the otherwise positive effects of “Phase One” of the trade agreement between the US and China. With only 12 months to increase its energy imports by USD 22.9 billion compared with 2019 levels, every month will count. China has already halved tariffs on USD 75 billion of imports from the US – including on crude oil – from 5% to 2.5%, to support its economy and imports. Despite this move, in BIMCO’s view, it is highly doubtful that China will meet its “Phase One” commitments if work and trade disruption is prolonged. Connect with BIMCO Because of China’s size and importance to the tanker market, any disruptions to its oil trading caused by coronavirus will have a major impact on the tanker market Oil product tanker earnings 2016-2020 90,000 90,000 80,000 80,000 70,000 70,000 60,000 60,000 50,000 50,000 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 00 LR2 LR1 MR Source: BIMCO, Clarksons Note: Data updated through to 14 February 2020. 25 20 15 10 5 0 70% 56% 42% 28% 14% 0% Chinese crude oil imports from the Middle East Monthly basis, 2017-2019 Saudi Arabia Iraq Share of total Chinese crude imports (RH-axis) Source: BIMCO, GACC Iran Oman Kuwait Other 14 13 12 11 10 9 8 7 6 5 4 3 2 1 - 42% 39% 36% 33% 30% 27% 24% 21% 18% 15% 12% 9% 6% 3% 0% US crude oil exports 2017-2019 World total China China’s share of total exports (RH-axis) World total (excluding China) Source: BIMCO, US Census Bureau 35 30 25 20 15 10 5 0 -5 -10 -15 Crude oil tanker fleet growth 2016A-2022E 2019A Demolition 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% 2022E -4% -20 2016A To be delivered p.a. 2017A 2018A 2020F 2021E Growth rate (RH-axis) Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% of the remaining vessels on order are delayed/postponed. Crude oil tanker earnings Oil product tanker fleet growth EIA revisions to global and Chinese oil demand Photo (top): AvigatorPhotographer / iStock Crude Oil Tankers DWT Aframax 8 0,000-119,999 Suezmax 120,000-199,999 VLCC 200,000+ Product Tankers DWT Product 10,000-29,999 MR/Handy 30,000-59,999 LR1 60,000-79,999 LR2 80,000-120,000 Facebook Twitter Linkedin YouTube Million DWT Million tonnes Million tonnes USD per day Growth rate p.a. China’s share of total exports Share of total Chinese imports USD per day Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec. 2019 Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec. 2019 Jan 2016 Mar 2016 May 2016 Jul 2016 Sep 2016 Nov 2016 Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Mar 2018 May 2018 Jul 2018 Sep 2018 Nov 2018 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 Tanker: 19 February 2020 Fleet sizes (change since 1 January 2020) Crude: 457.3 million DWT (+1.0%) Product: 170.2 million DWT (+0.4%) Rate indices (change since 19 November 2019) BDTI: 872 (-27%) BCTI: 707 (+2%) Oil product tanker arnings 2016-2020 90,000 90,000 80,000 80,000 70,000 70,000 60,000 60,000 50,000 50,000 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 00 LR2 LR1 MR Source: BIMCO, Clarksons Note: Data updated through to 14 February 2020. Jan 2016 Mar 2016 May 2016 Jul 2016 Sep 2016 Nov 2016 Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Mar 2018 May 2018 Jul 2018 Sep 2018 Nov 2018 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 USD per day USD per day Crude oil tanker earnings 2016-2020 320,000 320,000 280,000 280,000 240,000 240,000 200,000 200,000 160,000 160,000 120,000 120,000 80,000 80,000 40,000 40,000 00 VLCC Suezmax Aframax Source: BIMCO, Clarksons Note: Data updated through to 14 February 2020. Jan 2016 Mar 2016 May 2016 Jul 2016 Sep 2016 Nov 2016 Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Mar 2018 May 2018 Jul 2018 Sep 2018 Nov 2018 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 USD per day USD per day 25 20 15 10 5 0 70% 56% 42% 28% 14% 0% Chinese crude oil imports from the Middle East Monthly basis, 2017-2019 Saudi Arabia Iraq Share of total Chinese crude imports (RH-axis) Source: BIMCO, GACC Iran Oman Kuwait Other Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec. 2019 Million tonnes Share of total Chinese imports 14 13 12 11 10 9 8 7 6 5 4 3 2 1 - 42% 39% 36% 33% 30% 27% 24% 21% 18% 15% 12% 9% 6% 3% 0% US crude oil exports 2017-2019 World total China China’s share of total exports (RH-axis) World total (excluding China) Source: BIMCO, US Census Bureau Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec. 2019 Million tonnes China’s share of total exports 35 30 25 20 15 10 5 0 -5 -10 -15 Crude oil tanker fleet growth 2016A-2022E 2019A Demolition -20 2016A To be delivered p.a. 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% 2022E -4% Growth rate (RH-axis) 2017A 2018A 2020F 2021E Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% of the remaining vessels on order are delayed/postponed. Million DWT Growth rate p.a. 10 8 6 4 2 0 -2 2016A-2022E 2019A Demolition 10% 8% 6% 4% 2% 0% -2% 2022E -4% Growth rate (RH-axis) Oil product tanker fleet growth -4 2016A To be delivered p.a. 2017A 2018A 2020F 2021E Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% of the remaining vessels on order are delayed/postponed. Million DWT Growth rate p.a. Revisions to global petroleum consumption forecast (2020) Thousand barrels per day Coronavirus-related changes to China petroleum consumption (2020) Thousand barrels per day 00 -200 -100 -400 -200 -600 -300 -800 -400 -1,000 -500 -1,200 -600 slower economic growth reductions in other transportation fuels Revisions to consumption: in China in rest of world flight cancellations Source: BIMCO, US Energy Information Administration Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ECONOMY March 2020 SHIPPING MARKET ANALYSIS Use tabs to navigate to pages Macroeconomics Tanker Container Dry bulk Container shipping Carriers struggling with higher fuel costs face little support from market fundamentals Low demand growth will continue into 2020, with carriers struggling to increase freight rates enough to cover the additional costs of the IMO 2020 sulphur cap compliance. Fleet growth is lower then last year, but still too high compared to demand growth. Demand drivers and freight rates Quick Facts This year will be different In January, unaffected by the coronavirus (COVID-19) outbreak, freight rates rose, as per their usual seasonality, with rates traditionally rising in January from December. The hike this year was not enough to cover the additional costs of the IMO 2020 sulphur cap, with the market offering little support to carriers attempting to pass these on fully. The comprehensive Shanghai Containerized Freight Index (SCFI) rose to 1,022.6 in the second week of January, up from 850.3 at the start of December 2019. Since then, the spot market index has fallen, down to 981.2 on 24 January 2020. Similarly, the China Containerized Freight Index (CCFI), also covering long-term contracts and more ports, rose to 965.3 on 24 January 2020, from 822.7 at the start of December. What should really be made of these increases? If we compare the average January 2020 with average readings of the indices over the past six years, the SCFI is 91.3 points (10.1%) higher and the CCFI 55.8 points (6.4%) higher. Both indices were higher in January 2015. Comparing the January 2020 average with the January averages of the past six years of China and Europe paints a similar picture. The freight rates are above the six-year average – but not remarkably so – and not enough to cover the additional fuel costs from IMO 2020, this adds further pressure to carriers’ bottom lines. The Bunker Adjustment Factors (BAFs) have been widely criticised for not being transparent or for being too complex to understand, leading to carriers having trouble implementing them. Those that have succeeded may have done so by lowering the underlying freight cost, such that the total price shippers’ pay has not changed much. The strong freight rates come from the seasonality linked to volumes out of China being frontloaded ahead of the widespread factory closures for the Chinese Lunar New Year holiday. Volumes tend to fall during the holiday period, before ramping up again once the holiday ends. This year will be different. Following the outbreak of the coronavirus in China, manufacturers have been much slower returning to capacity after the holiday. Many have stayed closed for weeks past their planned reopening date, and the return of workers has been delayed by widespread closures of inter-city transportation. As exports fall, carriers have been blanking sailings to reduce the capacity on routes out of China, despite the demand for goods being – as yet – unaffected by the virus, as it is driven by overseas buyers. Disruption to Chinese manufacturing trades will also have consequences for neighbouring countries, as supply chains are deeply interconnected; manufacturers in one country often rely on those in another. This interconnectedness is the reason why intra-Asian container volumes are an early indicator of what will be exported on the long-distance trades out of Asia. Manufacturing in China, therefore, is not alone in facing problems; knock-on effects will be felt by manufacturing and exports throughout the region. Extended blanked sailings were the first measures taken by global liner companies to ease the pressure of low demand. On the Far East to Europe trade, data from Alphaliner shows that capacity reductions are expected to total 700,000 TEU in the eight weeks following the Chinese Lunar New Year, more than double the reductions made over the same period in 2019 (340,000 TEU). Peter Sand, Chief Shipping Analyst at BIMCO Emily Stausbøll, Shipping Analyst at BIMCO Average container freight rates from China in January 1,100 1,050 1,000 950 900 850 800 750 700 650 600 2015 2016 2017 SCFI 2018 CCFI 2019 1,100 1,050 1,000 950 900 850 800 750 700 650 2020 600 2015-2020 Source: BIMCO, Shanghai Shipping Exchange Note: The average January readings of the SCFI and CCFI over the past six years show that rates were above average in 2020, but not remarkably so. Intra-Asian container volumes 2017-2019 4,400 10% 4,000 9% 3,600 8% 3,200 7% 2,800 6% 2,400 5% 2,000 4% 1,600 3% 1,200 2% 800 1% 400 0% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -1% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis)Source: BIMCO, CTS 1,500 1,250 1,000 750 500 250 0 -250 -500 -750 2016A To be delivered p.a. 2018A 2020F 2021E 12% 10% 8% 6% 4% 2% 0% -2% -4% 2022E -6% Container ship fleet growth 2016A-2022E 2019A Demolition 2017A Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 20% of the remaining vessels on order are delayed/postponed. Growth rate (RH-axis) In the short term, if goods are not produced there are no alternatives and demand will fall. However, in the medium term, alternative producers will start to appear, just as we have seen as a result of the ongoing trade war between the US and China. this trade in Growth in intra-Asian trade – the largest when measured by container numbers – disappointed in 2019, with full-year growth of just 0.6%, after rises of around 4% in both 2017 and 2018. The global slowdown and the trade war, were the primary drivers behind this contraction. The negative impact of the coronavirus on manufacturing in the region may well be enough to see volumes falling in 2020 compared with 2019. Fleet news BIMCO expects the container shipping fleet to grow by 2.5% in 2020, marking the first time in four years that deliveries will be below one million twenty-foot equivalent units (TEUs). On top of a fall in deliveries, demolitions are set to rise to 200,000 TEUs. No container ships between 2,700 and 11,000 TEUs were ordered in 2019. Contracting activity focused on feeder vessels (of which 37 were ordered), Neo-Panamax (10) and ultra-large container ships (30). A total of 761,880 TEUs was ordered in 2019. Size specifications can be found in the index box below. The unpopular middle-vessel sizes are not only experiencing an absence of orders but, for a long time, deliveries of these ships have not been enough to counteract demolition, with the Panamax fleet (3,000- 7,999 TEUs) shrinking every year since 2015. At the start of 2016, the Panamax fleet had a capacity of 3.6 million TEUs; by the end of 2019, this number had dropped to three million. The expansion of the Panama Canal in 2016, allowing larger container ships through, and continued growth in the larger ship sizes, has squeezed the market for Panamax vessels, which now find themselves stuck in the middle. They are not large enough to reap the benefits of economies of scale – being forced out of more secondary trades because of cascading of vessels from the largest routes – and are too big for the traditional feeder routes. Currently employed worldwide, they are most common in Central America, West Africa and the Far East. Feeder ships (100 – 2,999 TEUs), on the other hand, remain popular. The continued expansion of ships on long-haul routes means they can call at fewer ports, while at the same time bringing more containers into a region, increasing the need for feeder lines around the major hubs. BIMCO believes the hub-and-spoke strategies deployed throughout the industry will continue to support demand growth for flexible feeders (size and gear). Outlook Global container shipping demand growth slowed to 0.8% in 2019. The factors behind this contraction remain the same: „ Despite GDP growth set to recover in 2020, the trade-to-GDP multiplier remains low, limiting the growth in container traffic, as much of the growth comes from services, rather than the goods needed to lift the seaborne market. Furthermore, growth in developed economies, which drive demand for container shipping, is projected to slow further in 2020. „ The trade war drags on, although further escalation has been avoided. The “Phase One” agreement between the US and China is primarily focused on Chinese imports of dry bulk and agricultural goods from the US. While all US tariffs are still in place, others set to be implemented on 15 December 2019 were avoided. As “Phase One” of the agreement’s primary focus is on goods from the US to China, the trade war will continue to hurt the more important eastbound transpacific trade. In 2019, inbound laden container imports to the US West Coast fell 5%, the first decline since 2011. BIMCO does not expect “Phase Two” of a deal to be signed before the US election in November. That paints a bleak outlook for this trade in 2020, even before the effects of the coronavirus outbreak are taken into account. Blanked sailings are common around the Chinese Lunar New Year, but this capacity is usually returned shortly after the holiday ends. However, because of the prolonged factory shutdowns in China to limit the spread of the coronavirus, carriers have blanked more sailings. This has been done to support freight rates by limiting capacity as demand for transportation has fallen. A prolonged downturn in Chinese manufacturing may result in a boost in exports once the virus is contained and manufacturing is back at its usual capacity. If demand remains unaffected, container shipping may receive a boost although, overall, this is unlikely to make up for lost volumes earlier in the year. The fundamental balance of the container shipping market will once again deteriorate in 2020. Although fleet growth has fallen, it still exceeds the expected growth in demand. This comes at a time when, even during the seasonally strong pre-Lunar New Year period, carriers had difficulty passing on the extra fuel costs – a situation that, given the lower demand, has continued to worsen. Connect with BIMCO effects of the A bleak outlook for 2020, even before the coronavirus outbreak are taken into account Global container shipping demand 2017-2019 16 12% 10% 12 8% 10 % 8 4% 6 2% 4 0% 2 -2% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -4% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, CTS 14 Photo (top): jimmux / Shutterstock Container TEU Feeder 100-2,999 Panamax 3,000-4,999 Post Panamax 5,000-9,999 Neo Panamax 10,000-14,499 Ultra large container ship (ULCS) 14,500+ Facebook Twitter Linkedin YouTube Million TEU ‘000 TEU Thousand TEU Index Growth rate Growth rate p.a. Growth rate Index Container: 19 February 2020 Total fleet size (change since 1 January 2020) 23 million TEU (+0.2%) Rate indices (change since 19 November 2019) CCFI: 936.65 (+12.2%) SCFI: 910.58 (+14.1%) Average container freight rates from China in January 1,100 1,050 1,000 950 900 850 800 750 700 650 600 2015 2016 2017 SCFI 2018 CCFI 2019 1,100 1,050 1,000 950 900 850 800 750 700 650 2020 600 2015-2020 Source: BIMCO, Shanghai Shipping Exchange Note: The average January readings of the SCFI and CCFI over the past six years show that rates were above average in 2020, but not remarkably so. Index Index Intra-Asian container volumes 2017-2019 4,400 10% 4,000 9% 3,600 8% 3,200 7% 2,800 6% 2,400 5% 2,000 4% 1,600 3% 1,200 2% 800 1% 400 0% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -1% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, CTS Thousand TEU Growth rate 1,500 1,250 1,000 750 500 250 0 -250 -500 -750 2016A To be delivered p.a. 2018A 2020F 12% 10% 8% 6% 4% 2% 0% -2% -4% 2022E -6% Growth rate (RH-axis) Container ship fleet growth 2016A-2022E 2019A Demolition 2017A 2021E Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 20% of the remaining vessels on order are delayed/postponed. ‘000 TEU Growth rate p.a. Global container shipping demand 2017-2019 16 12% 14 10% 12 8% 10 6% 8 4% 6 2% 4 0% 2 -2% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -4% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, CTS Million TEU Growth rate ECONOMY March 2020 SHIPPING MARKET ANALYSIS Use tabs to navigate to pages Macroeconomics Tanker Container Dry bulk Dry bulk shipping Seasonality, higher fuel costs, and coronavirus disruption behind poor start to new decade for dry bulk earnings The fundamental balance will continue to deteriorate in 2020, offering little support to operators hoping to pass on higher fuels costs, caused by the sulphur cap, to shippers. Demand drivers and freight rates The start of the new year has, as is often the case for dry bulk shipping, been marked by falling freight rates. The seasonal slump, typical in January after a strong Q4, has been exacerbated by the additional cost of fuel resulting from the IMO 2020 sulphur cap. The steep drop in average Capesize earnings that began in early December continued into the new year. The Baltic Capesize Index fell into negative territory for the first time on 31 January, and average earnings stood at USD 2,660 per day on 7 February. In fact, by this date, only Supramax ships were earning above USD 5,000 a day, with average earnings for that sector standing at USD 5,400 per day. Panamax and Handysize earnings had fallen to USD 3,535 per day and USD 3,502 per day, respectively. For the shipping industry, developments in average earnings are much more important than changes to the BCI, which is an important tool in the financial markets, but provides little information to the shipping community. These sharp declines reflect more than just the underlying freight market dynamics. The earnings figures also take into account the cost of fuel, which has risen significantly since the implementation of the 2020 sulphur cap. The higher cost of low-sulphur fuels means earnings have taken a substantial hit. Earnings on a time-charter equivalent basis are based on a non- scrubber fitted ship. Scrubber-fitted ships’ earnings have remained higher because of the lower cost of high-sulphur fuel, rather than premiums for scrubber-fitted ships. What matters is who pays for the fuel. The steep drop in earnings illustrates that passing on the extra fuel cost has been near-impossible to implement on voyage charters. Quick Facts The higher cost of low- sulphur fuels means earnings have taken a substantial hit Peter Sand, Chief Shipping Analyst at BIMCO Emily Stausbøll, Shipping Analyst at BIMCO US soya bean exports are expected to rise this year Demand growth at the lower end of the range now looks more likely to be a best- case scenario following the outbreak Photo (top): Lukasz Z / Shutterstock For example, on the major Tubarao, Brazil to Qingdao, China iron ore trade, average Capesize earnings stood at USD 6,341 per day in January. This is down 71.6% from the December 2019 average and 60.8% lower than the January 2019 average. On the other hand, the dollar per tonne spot rate – the all-inclusive rate for shippers to pay – has seen much more stability but it is also abundantly clear that higher fuel costs are not, in most cases, being passed on from operators/owners to the shippers. The January 2020 average for the same Tubarao to Qingdao route has fallen just 8.3% since December 2019 and is almost 4% higher than the average in January 2019. Furthermore, a scrubber-installed Capesize ship sailing the same Brazil to China route and able to continue sailing on the cheaper high-sulphur fuel oil, averaged USD 17,541 per day in January 2020. That is USD 11,000 per day more than a non- scrubber fitted ship (Source: Clarksons). Brazilian iron ore exports fell 10% in 2019, following huge disruption to Vale’s operations throughout the year, but in particular after the disastrous Brumadinho tailings dam collapse. Questions remain over its ability to ramp up and return to 2018 production levels. Rising production and exports from Vale – enough to require spot cargoes on top of the volumes being transported in the long-term charter market on very large ore carriers (VLOCs) and Valemaxes – would provide a much-needed boost to the shipping industry. However, the start of the new decade brought new problems for the company and other Brazilian iron ore firms when heavy rains disrupted inland transport of iron ore and damaged the mining infrastructure. Dry bulk earnings 2016-2020 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 00 Capesize Panamax Supramax Handysize Source: BIMCO, Clarksons Note: Data updated through to 14 February 2020. Brazilian iron ore exports 2018-2020 40 20% 35 15% 30 10% 25 5% 20 0% 15 -5% 10 -10% 5 -15% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -20% 2018 2019 2020 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, ComexStat 50 40 30 20 10 0 -10 -20 -30 Dry bulk ship fleet growth 2016A-2022E 2019A Demolition -40 2016A To be delivered p.a. 5% 4% 3% 2% 1% 0% -1% -2% -3% 2022E -4% Growth rate (RH-axis) 2017A 2018A 2020F 2021E Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% of the remaining vessels on order are delayed/postponed. Chinese coal imports 2017-2019 36 30% 34 28% 32 26% 30 24% 28 22% 26 20% 24 18% 22 16% 20 14% 18 12% 16 10% 14 8% 12 6% 10 4% 8 2% 6 0% 4 -2% 2 -4% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -6% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, General Administration of Customs PR China US soya bean exports in the first five months of this season, which began on 1 September 2019, are stronger than last year, up 5.5 million tonnes (+25.8%), but still 7.8 million tonnes lower than exports in the 2017/2018 season, before the trade war began. Strong fourth-quarter US exports helped pull total Chinese imports into positive year-on-year growth, after being in negative territory for most of the year. Growth of 0.5% in 2019, however, has not been enough to make up for the losses of 2018, with Chinese demand 7.1 million tonnes lower than in 2017 – a drop of 94 Panamax loads (75,000 tonnes) – caused by the trade war and an outbreak of African swine fever that has decimated the Chinese pig herd. Having been included in “Phase One” of the US-China agreement, US soya bean exports are expected to rise this year, although the sheer volume of commitments agreed by the Chinese casts doubt over the viability of the deal. The uncertainty that has dominated US soya bean sales to China since the start of the trade war means US farmers may be reluctant to commit to growing the much larger volumes the agreement calls for. Already in the current season, the acreage planted in the US is down 16% from the 2017/2018 season. Furthermore, the African swine fever outbreak in China, which has led to the culling of livestock, has cut the country’s demand for soya beans, making it highly unlikely that consumption – or demand – will grow by as much as the commitments made in the deal. Fleet news After a 3.9% fleet expansion in 2019, BIMCO expects dry bulk fleet growth to slow to 3.1% in 2020. As this level of growth still exceeds demand growth, the market will also deteriorate in 2020. Demolitions are expected to rise to 12 million deadweight tonnage (DWT) in 2020, up 4.2 million DWT from 2019. With expected deliveries of 39.3 million DWT, the dry bulk fleet is set to exceed 900 million DWT for the first time. Demolitions this year are expected to include up to half of the VLOCs that were converted from very large crude carriers between 2007 and 2011. At the start of February, 33 of these ships were still sailing, but many of the long-term contracts on which they had been employed – transporting iron ore between Brazil and China – are now coming to an end. With the current market offering little incentive to keep ships of more than 20 years old sailing, many will be heading to the scrapyards. Given the high volume of Valemax ships delivered in the past two years, totalling 12 million DWT, and a further three 400,000 DWT ships slated for completion this year, demolitions of older vessels will not result in a shortage of VLOCs. Outlook China increased its imports of all its major commodities in 2019, but there is no guarantee this will continue in 2020. Chinese iron ore imports were down in the first 11 months of 2019, but record- breaking imports in December of 101.3 million tonnes, resulted in full-year growth of 0.5%. Total imports in 2019 were 6.5 million tonnes lower than the record-breaking 1,075 million tonnes in 2017. China’s coal imports fell to 2.8 million tonnes in December, around a tenth of average monthly imports recorded during the rest of the year. The drop reduced overall year-on-year growth to 6.3%, down from 10.4% after 11 months. While the fall looks dramatic, it derives from delays in customs clearance rather than from volumes not being shipped. The coal will be cleared in the coming months. Because of the year-on-year growth, the Chinese government’s public goal not to increase coal imports in 2019 compared with 2018, has been missed. The dry bulk market continuously benefits from these steady, albeit shorthaul, imports. Coal imports will continue to be heavily influenced by the government, but the effect of environmental policies will depend on how serious the China is about implementing its commitments. The government has approved new coal power plants – in part as a form of stimulus for the slowing economy – despite its commitments under the Paris Agreement to peak greenhouse gas emissions as soon as possible. Chinese dry bulk imports have faced severe disruptions as a result of the coronavirus outbreak. An extended holiday across the country has meant lower demand, as well as delays in ports. The ending of the Chinese Lunar New Year holiday usually sees a pick- up in demand. This year, depleted demand and low freight rates have persisted for much longer than usual. Before the coronavirus outbreak, BIMCO estimated that demand for dry bulk shipping would grow by between 1.5% and 2.5% in 2020, compared with only 1.1% growth in 2019. The higher growth in 2020 is much needed to mitigate the increased costs associated with compliance to the 2020 sulphur cap. However, demand growth at the lower end of the range now looks more likely to be a best-case scenario following the outbreak. As fleet growth will be higher than even the best-case scenario for supply growth, the fundamental balance is expected to continue worsening in 2020. Dry Bulk DWT Handysize 10,000-39,999 Handymax 40,000-64,999 Panamax 65,000-99,999 Capesize 100,000+ VLOC 200,000-350,000 Valemax 380,000-400,000 Connect with BIMCO Facebook Twitter Linkedin YouTube Million tonnes Million DWT Million tonnes USD per day Growth rate Growth rate p.a. Growth rate USD per day Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 Oct 2018 Jan 2019 Apr 2019 Jul 2019 Oct 2019 Jan 2020 Dry Bulk: 19 February 2020 Total fleet size (change since 1 January 2020) 884.3 million DWT (+0.6%) Rate indices (change since 19 November 2019) BDI: 480 (-63%) BCI: -232 (-109%) BPI: 755 (-32%) BSI: 505 (-34%) BHSI: 298 (-40.55%) Dry bulk earnings 2016-2020 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 00 Capesize Panamax Supramax Handysize Source: BIMCO, Clarksons Note: Data updated through to 14 February 2020. Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 Oct 2018 Jan 2019 Apr 2019 Jul 2019 Oct 2019 Jan 2020 USD per day USD per day Brazilian iron ore exports 2018-2020 40 20% 35 15% 30 10% 25 5% 20 0% 15 -5% 10 -10% 5 -15% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -20% 2018 2019 2020 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, ComexStat Million tonnes Growth rate 50 40 30 20 10 0 -10 -20 -30 Dry bulk ship fleet growth 2016A-2022E 2019A Demolition -40 2016A To be delivered p.a. 5% 4% 3% 2% 1% 0% -1% -2% -3% 2022E -4% Growth rate (RH-axis) 2017A 2018A 2020F 2021E Source: BIMCO estimates on Clarkson’s raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2020-2022 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% of the remaining vessels on order are delayed/postponed. Million DWT Growth rate p.a. Chinese coal imports 2017-2019 36 30% 34 28% 32 26% 30 24% 28 22% 26 20% 24 18% 22 16% 20 14% 18 12% 16 10% 14 8% 12 6% 10 4% 8 2% 6 0% 4 -2% 2 -4% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -6% 2017 2018 2019 Acc. y-o-y growth 2018 (RH-axis) Acc. y-o-y growth 2019 (RH-axis) Source: BIMCO, General Administration of Customs PR China Million tonnes Growth rate