Shipping Markets on the Rise: Unpacking the Dry Bulk and Tanker Dynamics for 2024-2025

An Analysis by A. Kemene

The shipping industry has faced significant changes in recent years, driven by fluctuating demand, market conditions, and external pressures like decarbonization efforts. To shed light on these dynamics, Angelica Kemene , Head of Market Analysis and Decarbonization Strategies at Optima Shipping Services Group , provided an analysis of the current state of the dry bulk and tanker markets in her most recent presentation at the Analyst Update Webinar? hosted by Capital Link.

?

To view the full presentation, please follow the link below:

?

Dry Bulk and Tanker Market Performance in 2024

Μs. Kemene’s analysis primarily focused on the strong growth seen in both the dry bulk and tanker markets in 2024. Specifically, she highlighted the substantial year to date growth in freight earnings across various segments.

In the product tanker segment, LR1 tankers led the way, followed by LR2 and MR tankers. Crude oil tankers also saw impressive gains, with Aframax tanker showing a 68% growth in earnings, followed by Suezmaxes and VLCCs.

?On the other hand, in the dry bulk sector, cape-size bulkers stood out with a significant 54% growth compared to their 10-year averages. Other bulk segments, such as Handysize, Supramax, and Panamax, experienced more moderate growth in earnings, ranging from 19% to 30%.

??

Asset Values and Fleet Composition

When comparing asset values, Ms. Kemene noted that older vessels are experiencing notable price increases. This trend is especially pronounced in the tanker segment, where secondhand vessel prices for Aframax, MR, and Suezmax tankers have surged. Cape size bulkers and Ultramax bulk carriers also saw significant price growth, with Cape size vessels increasing by 68% and Ultramax by 75%.

However, despite the elevated prices for older vessels, secondhand values in the dry bulk market have recently declined by around 8-10% for vessels aged 10-15 years. The discrepancy between high asset prices and recent price drops may reflect market corrections and varying demand dynamics between bulkers and tankers.

?

Supply and Demand Outlook for 2024 and 2025

According to Ms. Kemene, the dry bulk market is expected to remain healthy for the remainder of 2024 and well into 2025. Demand growth in the Atlantic, coupled with disruptions in affected regions like the Red Sea, will likely support freight rates. Similarly, the tanker market outlook remains positive, with factors such as vessel rerouting around the Cape of Good Hope and evolving trade patterns between Russia and Europe bolstering the sector.

Nevertheless, Ms. Kemene warned that OPEC+ output caps, if delayed or extended, could cap the tanker market’s upside. Additionally, the broader macroeconomic environment, marked by flat global GDP growth (forecasted at 2.7% for 2024 by Oxford Economics), will have an impact on both sectors.

?

The China Factor and its effects in the Dry Bulk Market

As Ms. Kemene pointed out, a significant portion of the demand for dry bulk shipping comes from China, particularly its demand for commodities such as iron ore and coal. In 2024, China’s fiscal policy has been moving in a supportive direction, with the government focusing on infrastructure investment and economic stimulus. Initiatives such as ultra long stimulus bonds are expected to drive investment in critical infrastructure, further fueling demand for bulk carriers.

Iron ore, one of the most sought after commodities for the dry bulk sector, is projected to grow by 5% in 2024. Coal, both thermal and coking, is expected to see modest growth of 1%, while grain shipments are forecasted to grow by 6%. These commodities are expected to contribute to a 4% ton-mile growth in 2024.

Regrettably, the outlook for 2025 is more mixed. Ms. Kemene acknowledged that iron ore demand is expected to flatten, and coal imports may decrease by 1%. Despite these challenges, grains and minor bulks are forecasted to maintain moderate growth, with the overall dry bulk market seeing around 2% ton-mile growth in 2025.

?

Commodities Supporting the Dry Bulk Market

One of the key commodities driving the dry bulk market in 2024 has been bauxite. Guinea has exported approximately 97.5 million tons of bauxite, far outpacing Australia, the second largest exporter. Ms. Kemene observes that the destination for this bauxite is China, where demand is driven by the country’s vast aluminum production capabilities. The growth in bauxite trade, particularly from Guinea, has supported the Cape size sector, which handles these large bulk volumes.

Furthermore, global seaborne iron ore trade grew by 4.5% year on year in 2024, supported by robust Chinese demand. While Australian iron ore exports have remained steady, Brazil has experienced an 8% growth in exports, driven by strong production from Vale’s project. Looking ahead, Ms. Kemene predicted that Chinese seaborne iron ore imports are expected to rise by 4% in 2024, though demand may weaken in 2025.

?

Positive Prospects on the Oil Tanker Market?

When it comes to the crude oil tanker market Ms. Kemene maintains a positive outlook, expecting seasonal strengthening in the fourth quarter of 2024 and continued growth into 2025. Crude tanker trade is projected to grow by 3% next year, supported by the potential unwinding of OPEC+ output cuts. This follows a 2% growth forecast for 2024, tempered by weaker Chinese demand and disruptions in Libya.

In the product tanker market, demand remains strong, boosted by rising refinery capacity and longer trade routes, particularly through the Red Sea. Product tanker demand is expected to increase by 5.2% in 2024 and by nearly 4% in 2025, that is, assuming disruptions in the Red Sea persist.

Despite some challenges, such as weakening demand for oil in China and shifting trade dynamics, Ms. Kemene indicated that the oil tanker market is expected to remain resilient. Long term shifts towards alternative energy sources, electric vehicles, and changing consumer behaviors may temper future oil demand growth, but the near term outlook remains favourable.

?

Environmental Regulations and Fleet Dynamics

?Environmental regulations have had a significant role in shaping the future of the shipping industry for a while now. According to Ms. Kemene, the average speed of dry bulk fleets has been declining due to stricter environmental rules, a trend expected to continue. This will likely lead to a reduction in effective supply, which may support freight rates in the dry bulk market.

In terms of fleet composition, Ms. Kemene expressed some concerns as approximately 25% of the dry bulk fleet is 25 years old or older, and 44% is older than 15 years. This aging fleet suggests that there will be significant investment in new tonnage in the coming years, driven in part by environmental regulations that make older, less fuel-efficient vessels less viable.

The tanker fleet faces similar challenges, with a large portion of the fleet aging and stricter environmental regulations on the horizon. The anticipated increase in scrapping activity, however, has yet to materialize, as advantageous market conditions have delayed retirements. All in all, Ms. Kemene expects scrapping to pick up in 2026 and beyond, as regulations tighten and market conditions evolve, but does persist that the market is expected to remain broadly positive as we move into 2025.

Capital Link – Disclaimer

Capital Link’s webinars, podcasts, articles and presentations may contain "forward-looking statements." Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "may," "will," "should" and similar expressions are forward-looking statements. These statements are not historical facts but instead represent only the beliefs of each participating Company regarding future results, many of which, in their nature, are inherently uncertain and outside of the control of the Companies. Actual results may differ, possibly materially, from those anticipated in these forward-looking statements. For more information about risks and uncertainties associated with the participating companies, please refer to the regulatory filings of each participating company with the SEC or other Stock Exchanges where they are listed.

Founded in 1995, Capital Link provides Investor & Public Relations and Media services to several listed and private companies, including companies featured in these webinars, podcasts, articles and presentations. All these, including the one mentioned above, are for informational and educational purposes and should not be relied upon. They do not constitute an offer to buy or sell securities or investment advice or advice of any kind. The views expressed are not those of Capital Link, which bears no responsibility for them. In addition, Capital Link organizes a series of industry and investment conferences annually in key industry centers in the United States, Europe, and Asia, all of which are known for combining rich educational and informational content with unique marketing and networking opportunities. Capital Link is a data partner of the Baltic Exchange. Based in New York City, Capital Link has presence in London, Athens & Oslo. For additional information please visit: www.capitallink.com.

?

?