In September, the Drewry Dry Bulk Equity Index rose 9.2%, outperforming the S&P 500(-4.9%), as there was a significant rise in vessel earnings. Similarly, in 3Q23, the Drewry Dry Bulk Equity Index increased 4.6%. However, when considering YTD performance, the Drewry Dry Bulk Equity Index was down 7.9%, underperforming the S&P 500(+11.4% YTD), as there was a steep decline in the index in 2Q23 due to weakening in vessel earnings arising out of lower than expected demand from China.

The stock price of DS Norden increased 15.8% in September, benefiting from rising dry bulk vessel earnings and a strong product tanker market. Similarly, share prices of Star Bulk Carriers, Golden Ocean and Pacific Basin rose by 9.7%, 8.2% and 6.2%, respectively. However, the stock price of Diana Shipping declined by 2.8% as all of its vessels are on fixed charters; thus, it did not benefit from rising vessel earnings.

In October (as of 19 October), the Drewry Dry Bulk Equity Index rose 1.7% and outperformed the S&P 500, which remained largely stable. The share price of DS Norden rose 6.6% in October, the maximum out of all the companies in the index, as it benefitted from a strong product tanker market and high dry bulk vessel earnings. Stock prices of Star Bulk Carrier and Golden Ocean improved by 1.6% and 1.3%, respectively. However, share prices of Diana Shipping and Pacific Basin declined by 2.9% and 2.4%, respectively.
The spot charter rates have been rising since September as demand for dry bulk vessels, especially larger vessels, is growing due to increased demand for coal from China. The Baltic Dry Index has breached its 15-month peak, which signals a robust recovery in the sector. Despite a rise in spot charter rates, asset prices have remained stable.

In China, demand for coal increased in September due to a surge in electricity demand. Extreme heat and industrial activity pushed the power demand; on the other hand, low rainfall curbed hydropower generation, which forced the country to depend on coal to meet its energy demand. Opening of coal trade with Australia also supported Capesize earnings.

In September, China’s iron ore demand declined 4.9% MoM which can be attributed to a decline in steel production. This downturn is linked to shrinking margins and a decrease in domestic demand. Despite an annual rise of approximately 16mn tonnes in steel production from January-September, net exports climbed by about 19mn tonnes, indicating a lack of domestic demand.

Moreover, China’s production PMI bounced to 50.2 in September compared to 49.7 in August, indicating expansion and recovery in the country’s manufacturing activity. This is likely to support charter rates in 4Q23.

Source: Drewry Maritime Financial Research