BIMCO Dry Bulk Market Report: Return to the Red Sea would weaken market
LONDON : We expect a weaker supply/demand balance in 2025 and 2026 than in 2024, even if ships do not fully return to the Red Sea.
In this report, we are working with two different demand scenarios, depending on when ships can fully return to the Red Sea. For our main scenario, we assume ships may gradually return to the Red Sea over the first half of 2025. In this scenario, the ceasefire agreed between Israel and Hamas leads toward an end to the conflict in Gaza and the Houthis are not directly attacked.
Consequently, the Houthis honour their commitment to suspend attacks in the Red Sea on non-Israeli ships, restoring safety in the Red Sea. For our alternative scenario, we assume that attacks do not cease in 2025 and therefore ships may only be able to fully return to the Red Sea in 2026. Should the attacks persist even in 2026, demand would be higher than forecast in either scenario.
Supply is expected to grow faster than demand in 2025 regardless of the scenario. It is forecast to grow 2-3% in 2025 and 1.5-2.5% in 2026. In the main scenario, demand is estimated to fall 0.5-1.5% in 2025 and grow 2- 3% in 2026. In our alternative scenario, demand would grow up to 1% in 2025 and 0.5- 1.5% in 2026.
We expect lower freight rates in 2025 and 2026 compared to 2024 due to the weaker supply/demand balance. Segments other than capesize may see a significant drop in demand and rates if ships return to the Red Sea. Panamax could fare the worst, as over half of the cargo they transport is coal, and we currently expect weaker coal shipments in 2025 and 2026. Capesize freight rates could be the most resilient due to low fleet growth.
During January 2025, the Baltic Dry Index (BDI) fell 6% m/m or 36% y/y. This reflected both seasonality, due to the Chinese New Year and a 2% y/y decrease in cargo loadings. For capesize ships, cargo loadings fell 6% y/y, pressuring the BDI, as capesizes account for 40% of the index. Forward Freight Agreements (FFA) indicate that freight rates should rebound from seasonal lows during the second quarter. However, the market currently expects weaker rates in 2025 than in 2024 across all segments.
Over the next two years, second-hand prices are expected to weaken together with freight rates. After peaking in July, they have gradually returned to early 2024 levels. In January 2025, a five-year-old ship sold on average for 88% of the price of a newbuild, the lowest since October 2023. Newbuilding prices have stabilised, and we do not currently expect them to significantly strengthen. Over the past quarter, contracting from the three main sectors slowed down, although container contracting remained at a high level. Lastly, recycling prices are expected to remain low, as China continues to export low-priced steel, impacting steel prices in South Asia.
Demand
In our main scenario, we forecast dry bulk demand to fall by 0.5-1.5% in 2025 and grow by 2-3% in 2026. In our alternative scenario, demand will grow up 0-1% in 2025 and 0.5- 1.5% in 2026.
For 2025 and 2026, we present two demand scenarios depending on when ships can fully return to the Red Sea. In the main scenario we assume ships may gradually return to the Red Sea and Suez Canal routes during the first half of 2025. In the alternative scenario we assume this may only happen in 2026. If ships do not fully return by 2026, demand growth will surpass both forecasts.
Continued reroutings via the Cape of Good Hope are estimated to correspond to a 2% demand increase. In our main scenario, average sailing distances are expected to shorten 1-2% in 2025 and lengthen again by up to 1% in 2026. In our alternative scenario, distances will remain stable in 2025 but fall 0.5-1.5% in 2026. On top of the expected return of ships to the Red Sea, other factors are also influencing distances. They are expected to be negatively affected by more transits through the Panama Canal in 2025 compared to 2024 levels, as water levels in Gatun Lake normalised during the third quarter of 2024.
Conversely, we expect distances to be positively affected by stronger cargo loadings in the South Atlantic in 2025 and 2026. In particular, the start of the Simandou iron ore project in Guinea could lead to longer sailing distances for capesizes from 2025.
Cargo volumes are estimated to grow by up to 1% in 2025 and by 1.5-2.5% in 2026. Minor bulk cargoes are expected to be a significant growth driver over the next two year, benefiting from the energy transition. However, we expect a stabilisation of iron ore shipments and a decrease in coal shipments, as China’s import demand cools.
We estimate that iron ore shipments will grow 0-1% in 2025 and stabilise in 2026.
Chinese steel demand is expected to continue falling in 2025 and 2026, whereas it could continue to rise in the rest of the world. In 2024, Chinese steel demand fell by 4% while production fell by only 2%, as growing steel exports partly compensated for the weaker demand. Over the coming years, Chinese steel exports could continue to grow, but not sufficiently fast to compensate for the weaker domestic demand. Iron ore price competitiveness is expected to be a significant factor, as the Chinese steel sector suffers from overcapacity and low operational margins. With expanding mining operations in Guinea, Brazil and Australia, iron ore imports will likely remain competitive, and could compete with domestic supplies.
Chinese iron ore mining already fell 7% y/y during the second half of 2024. China aims to achieve a target of 15% recycled steel in its total steel production by the end of 2025. Unlike new steel, recycled steel production does not use iron ore, using scrap steel instead. While there is ample capacity to produce recycled steel in China, competition with new steel proved to be challenging in 2024. In the short term, that may still be the case and the shift toward recycled may therefore not pose a significant threat to iron ore imports.
We forecast coal shipments to fall by 1.5-2.5% in 2025 and by 1-2% in 2026, despite an expected increase in global coal demand. Rising domestic coal production in India and China is expected to negatively impact shipments. However, we still forecast a slower and more gradual decrease in the coal trade than the International Energy Agency (IEA), which expects it to drop by 7.4% in 2025 and 3.6% in 2026.
According to the IEA, global coal demand is forecast to grow by 0.3% in 2025 and by 0.5% in 2026. The IEA expects Chinese coal demand growth to stabilise in 2025 whereas Chinese authorities estimate growth of 1%. China is expected to continue the rapid deployment of new renewable energy capacity, helping it meet its growing electricity requirements without resorting to coal. However, different scenarios could emerge, as Chinese coal demand is increasingly sensitive to variations in weather, which impacts electricity generation from renewables. India’s coal demand is estimated to rise 3.7% in 2025 and 2.1% in 2026, driven by a 5.4% yearly increase in electricity demand. Coal demand growth is slowing as the adoption of renewables accelerates, however, unlike in China, renewables are not growing sufficiently fast to meet growing demand.
Coal production in China is forecast by Chinese authorities to grow 1.5% in 2025, while the IEA believes it will remain stable. In India, the IEA forecasts it to grow 5.1% in 2025 and 4.9% in 2026. As the two largest coal importers in the world continue to increase production at home, imports could come under pressure. Grain shipments are estimated to grow 0-1% in 2025 and 2.5-3.5% in 2026. That is a 0.5 and 1.5 percentage point increase for 2025 and 2026 respectively since our last update, primarily due to a stronger outlook for maize and wheat in 2026. In the short term, shipments are expected to remain weak due to low Chinese import demand. However, in the medium term, they are expected to recover.
Maize shipments are expected to be a significant demand driver over the coming years. They fell in 2023 as Ukrainian exports slowed due to the war and have been recovering since. In 2026, they could at last surpass 2022 levels if Brazil and Argentina continue increasing their exports. Soya bean shipments are expected to increase by up to 1% in both 2025 and 2026, considerably slower than during the past two years. Supply is ample, following a strong harvest in the US during the second half of 2024 and an expected increase in the Brazilian and Argentinian harvests over the coming months. However, the demand side looks weaker, as crusher margins have been negative and as China sits on record high inventories. We forecast a 2.5-3.5% increase in shipments of minor bulk cargoes in both 2025 and 2026. We expect steel shipments to continue growing, as Chinese domestic steel demand is expected to remain weak for the foreseeable future.
Shipments of ores and minerals used in the energy transition are expected to continue growing. Bauxite shipments in particular are expected to continue to increase, which will primarily be of benefit to the capesize segment. Shipments of forestry cargoes are unlikely to significantly increase, as Chinese construction activity is expected to remain weak.
Supply
We forecast dry bulk supply to grow by 2-3% in 2025 and 1.5-2.5% in 2026.
The dry bulk fleet is forecast to grow on average by 2.9% in 2025 and by 2.7% in 2026. Since our previous forecast, we have revised fleet growth down 0.1 percentage points in 2025 and up 0.3 percentage points in 2026. Both deliveries and recycling have been revised up.
Ship deliveries are estimated to reach 35.0 and 37.7m deadweight tonnes (DWT) in 2025 and 2026 respectively. In 2026, the expected deliveries have increased by 3.2m DWT since our last update, due to a higher number of supramax and handysize ships scheduled for delivery during that year. 63% of new capacity will come from the panamax and supramax segments, while the capesize segment will only account for 24% of deliveries.
The dry bulk orderbook stands at 109.3m DWT, equivalent to 10.6% of the current fleet. 33.5% of this ship capacity is expected to be delivered after 2026. Ships contracted during the rest of 2025 and 2026, are expected to be delivered after 2026. 13% of ship capacity in the orderbook will be capable of using alternative fuels upon delivery, and an additional 14% will be ready for future conversion.
Out of the capable ships, 41% can use LNG, 37% methanol and the remaining 23% are expected to use ammonia. Ship recycling is estimated to increase to 7.2m DWT in 2025 and 9.6m DWT in 2026.
An expected weaking of the supply/demand balance in 2025 and 2026 will likely encourage the recycling of older ships. We have increased ship recycling estimates by 0.8 and 1.5 m DWT for 2025 and 2026, due to higher expected deliveries and a weaker demand outlook, amid the assumed return of ships to the Red Sea.
Sailing speeds are estimated to fall up to 1% in 2025 and in 2026, due to a weaker supply/demand balance.
If freight rates weaken, ships could sail at slower speeds to save on fuel costs. Regional environmental regulations such as FuelEU and EU ETS also incentivise lower sailing speeds, although these will only impact 9% of the market.
Congestion has been gradually decreasing since 2021, thus leading to a supply increase. We expect it to stabilise around current levels, although extreme weather events could drive it upwards.
Source: BIMCO