IHS: Bulk Market Turnaround Possible in 2017

Written by Amit Sharma

Analysts IHS released a white paper Tuesday suggesting that macroeconomic factors may halt the recent rally in bulk rates by the second half of the year. Uncertainty in the Chinese industrial and consumer economy, the Brexit referendum, stagnation in emerging markets and conflict in the Middle East could “profoundly impact dry bulk demand,” the firm said. 

“Short-lived rebounds will bring occasional relief to the market,” said Luciana Salles, principal trade analyst at IHS Maritime & Trade. “Many questions remain, however, as to when the current situation in the dry bulk markets will give rise to more sustainable rates on the whole, and whether the overall macroeconomic situation and the fundamental drivers can engender enough confidence to see a price recovery for a more prolonged period of time.” 

On the positive side, though, IHS forecasts that the market could turn around beginning in 2017, with demand growth finally exceeding supply growth thanks to improved economic conditions in Europe and America. In 2016, the firm predicts supply to grow by 1.8 percent more than demand, keeping rates near the present depressed level – but in 2017, it foresees demand growth leading supply growth by 3.7 percent, based on a 1.3 percent decrease in the global fleet capacity. 

IHS is also moderately optimistic on broad economic indicators for the remainder of the decade, forecasting roughly 3 percent global GDP growth and 4 percent trade growth annually from 2017 to 2020 – but still, compounded annual growth rates will be lower in the second half of the decade when compared to the first half.

“Freight rates could start to feel the effects of a more balanced market from 2018 onwards if the growth outlook for the world economy is sustained,” Salles said. “Meanwhile, we can expect episodic volatility – much like the one we are in now – as supply and demand variables get worked out by the natural order of the markets . . . Given the current market conjecture and our macroeconomic predictions, it is clear that the era of rapid globalized-driven growth in world trade is over and will give way to moderate growth for many years to come.”

About the author

Amit Sharma

Graduated from M.E.R.I. Mumbai (Mumbai University), After a brief sailing founded this website with the idea to bring the maritime education online which must be free and available for all at all times and to find basic solutions that are of extreme importance to a seafarer by our innovative ideas.

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