With the global economy and trade expected to develop rapidly in the post-pandemic period, shipbrokers expect that the dry bulk market and more specifically, freight rates for mid-sized bulkers could be the main beneficiaries. In its latest weekly report, shipbroker Intermodal said that “following the recent rally to multi-year highs of metal-based commodities, amid an unprecedented global economic stimulus, discussions of an emerging commodity supercycle have gained traction recently. Key stakeholders of our industry are debating whether this might be a beginning of a new shipping supercycle. An interesting development that could fuel further this view, is that of a potential infrastructure supercycle in the US”.
According to Mr. Lalaounis, SNP Broker with Intermodal, “a large part of the 2nd phase of the US fiscal stimulus scheme under the Biden administration, was planned to be invested in infrastructure. The chances of a large infrastructure bill have increased after the devasting winter storms two weeks ago, which resulted in billions of dollars damages and reiterated the previous decade’s infrastructure underinvestment.
As a candidate, Biden had proposed a $1.3 trillion investment towards infrastructure over the course of 10 years. However, with extended damages after the winter storms, the bill might end up much higher; with Goldman Sachs expecting it to reach $2 trillion or above.
This will be the largest infrastructure stimulus after the New Deal and depending on the extent it materializes, it should create a material multiplier effect on demand for building materials. The targeted infrastructure, such as bridges and roads, points towards increased steel and cement demand, which will likely make these commodities the main beneficiaries over a 10-year cycle. USA’s cement production particularly is running close to max capacity utilization, which means that there will be a production shortfall if demand rises significantly.
Cement production in the US came at 90 million tons in 2020, which is approx. 2.1% of the world production. Both demands for imports and cement production capacity will have to expand over the next years in order to cover domestic consumption. With the only sizeable cement/clinker producer being China (more than 50% of the global output), imports from the country and thus dry bulk ton-miles could increase materially”.
Lalaounis added that “the main shipping beneficiary will likely be mid-sized bulkers carrying minerals and steel, however the dominant vessel size in reality will be determined by the extent of the upward price pressure on the commodity and the need for cargo upsizing. Both steel prices (which have hit record high levels in the US recently) and cement/clinker prices, will race to the top under such stimulus multiplier and set the ceiling for international steel related commodities and thus freight higher. The last cement supercycle in the US lasted from 1990 to 2007 when cement prices had outperformed inflation; Morgan Stanley bullishly argues that “an infrastructure package could catapult building materials into a super cycle similar to the 1950s. We are 10 years into the current construction cycle, exiting a recession, and potentially facing a government-underwritten cycle of another 10 years”.
Intermodal’s analyst concluded that “it remains to be seen whether this infrastructure rebuild will be the trigger for another commodity and shipping supercycle. In any case, September 2021 is expected to be the deadline towards approval of a new infrastructure bill, and the spending won’t start until a year later, thus the impact will likely show later in 2022. The extent of the impact will also depend on how China will react to the news of such package from the US, with this week’s watch on China’s National People Congress and the release of the country’s 14th five-year plan”.