With contraction in vessel supply and healthy demand growth, the dry bulk shipping market is expected to recover from 2017 onwards, according to the latest edition of the Dry Bulk Forecaster, published by global shipping consultancy Drewry.

An impressive outlook for dry bulk demand coupled with a small order book of newbuilds as a percentage of the total fleet capacity will ensure a sustained recovery in the dry bulk market. Earnings in the dry bulk market are expected to improve from 2017 with a narrowing supply-demand gap. Demand is projected to grow at a healthy pace of three percent while supply is expected to grow by about one percent from 2017, making the dry bulk segment an interesting market to invest in.

“The outlook for the dry bulk shipping market continues to be positive as the supply and demand gap continues to narrow,” said Rahul Sharan, Drewry’s lead analyst for dry bulk shipping. “Charter rates are expected to improve for most of the dry bulk segments in 2017 with the steepest recovery expected in Capesize segment. Average charter rates are expected to rise from $8,000 per day in 2016 to $12,800 per day level in 2017 and will further improve from 2018.”

The growth in demand originates from a rise in iron ore and thermal coal trade. Coal demand is expected to rise mainly from developing Asian countries including Vietnam, South Korea, Taiwan, and China. The rise in Chinese domestic steel consumption will provide employment to  Very Large Ore Carriers (VLOCs) and Capesize vessels carrying iron ore in the market.

The supply side is projected to grow by just one percent from 2017 because of high scrapping and a thin order book. The environmental regulations on Ballast Water Treatment System (BWTS) will become effective in September 2017 and IMO’s regulation on use of low sulphur fuel oil in 2020 which will result in high scrapping of old tonnages. Shipowners will prefer to scrap their old tonnage, with low earnings potential, than incur additional cost on scrubber and Ballast Water Treatment Systems. On the other hand, a contracting order book and low future new orderings due to limited financing availability are keeping a check on future deliveries. At this point in time, the order book as a percentage of the total fleet, which is a strong indicator of future deliveries currently stands at a decade low.