In 2021, both tanker and bulk freight rates should climb as commodity demand improves on a global production recovery and rising inflation. By ship type, bulkers are likely to see the least supply burden thanks to a contraction in order backlogs.

Commodity prices and demand to increase

The prices of major commodities, such as oil, iron ore, coal, and grain, have begun rising on dollar depreciation and a gradual improvement in demand driven by normalizing industrial production. As commodity inventory levels are generally low, meaningful cargo volume improvement is expected in 1H21, when industrial production should normalize in earnest.

In 4Q20, iron ore inventory levels at Chinese ports decreased due to China’s steel production expansion. Backed by rising steel prices, iron ore demand has remained solid. Demand for coal is even recovering on increased heating demand and economic recovery centering on EMs. Oil trade volume is expected to climb on production expansion. Against this backdrop, bulk and tanker freight rates are judged to be passing a bottom. A jump in commodity prices led by dollar depreciation should further accelerate commodity demand improvement.

Supply burden least for bulkers, then containerships and tankers

We mainly attribute the share price surge being witnessed for domestic shipping companies to strengthening freight rates, which continue to increase amid deteriorating supply-demand conditions. However, current freight rates are unlikely to sustain for long. We expect to see an inflection point in 2Q21, when a large number of containerships (including 10,000TEU-sized ships) are to be delivered. In 2021, containership supply should expand 5% y-y.

In terms of bulkers, we expect 2021 supply growth of only 1.8% y-y due to a prolonged decrease in new orders since 2018. In 2021, demolitions for old bulkers are expected to accelerate, centering on Panamax or smaller vessels, with overall global bulker demolition reaching 15mn DWT in 2021. Recently, scrap prices have been widening on steel price growth. Amid demand recovery and reduced supply, we suggest looking towards the bulker market, where freight rates are passing a bottom. We suggest Pan Ocean as our domestic bulk shipping top pick.

Source: Hellenic Shipping