The Zhitong Finance App learned that Orient Securities released a research report saying that the dry bulk supply and demand pattern is expected to continue to improve from 2026 to 2027. 1) Demand: The gradual commissioning of Simandou iron ore and the growth of Guinean bauxite exports will continue to contribute to long-range cargo volume, driving demand per ton of nautical miles to maintain growth; 2) Supply: The scale of on-hand orders is relatively limited, and it is expected that the fleet supply growth rate will remain low in the next few years. Since 2026, the increase in shipping volume of iron ore and bauxite has formed the basis for improving the economy. The US-Iran conflict has further improved the utilization rate of the industry's capacity by disrupting routes and increasing demand for coal substitutions. In this context, freight rates may be more sensitive to capacity disturbances caused by El Niño. If strong El Niño continues to depress rainfall in the Panama Canal Basin and causes insufficient storage during the rainy season, the Canal Authority may further reduce draught water or cut troughs. Ship waiting and detour will continue to reduce effective capacity, and dry bulk freight prices may rise above expectations under extreme circumstances.
Orient Securities's main views are as follows:
El Niño changes the global precipitation pattern and affects the dry bulk market through cargo volume and transportation efficiency
El Niño is an abnormal state of walker circulation that will change the global precipitation pattern. There are clear regional differences in the impact of El Niño on major dry bulk production areas. Among them, grain yield and exports are more sensitive to weather changes, while mineral products such as iron ore and coal may improve production and port operations due to reduced rainfall. However, reduced rainfall will cause water levels to drop, and effective capacity will be reduced due to restrictions on key waterways, restrictions on inland waterway connections, and detours.
The Panama Canal relies on fresh water to operate, and the reduction in troughs determines the impact intensity of effective capacity
The core constraint of the Panama Canal comes from fresh water supply. Lake Gatong not only determines the depth of the waterway, but also provides water for lock operation. Therefore, continuous rainfall shortages need to be transmitted sequentially to a drop in lake level, lower drafts, and a reduction in traffic slots before there is a significant impact on effective capacity. The canal's reservation and auction mechanism is more beneficial to container ships with fixed shipping schedules and high cargo values, while the impact of dry bulk carriers with lower cargo values and uncertain arrival times is significantly higher than other ship types. Mild load reduction is usually insufficient to boost dry bulk freight prices. Queuing and detours caused by slot reduction are the key thresholds for releasing freight rate flexibility; historical reviews also show that canal restrictions only significantly amplify freight rate fluctuations when the utilization rate of dry bulk production capacity is tight.
Insufficient storage during the rainy season is driving the upgrade of slot restrictions. The 2027 dry season is the main risk window
As of August 2026, the water level in Lake Gatong was still significantly higher than the extreme low level of 2023, but rainfall and insufficient incoming water from May to August 2026 have already pushed the canal restrictions to be upgraded from load reduction to “load reduction+tank limit” for new Panamanian ships, indicating that hydrological pressure has begun to enter the operational level. Strong El Niño will increase the probability that there will be little rain in the Panama Canal Basin; if the water level is not sufficiently replenished in the latter half of the rainy season, the first to second quarter of 2027 will be the main window for effective capacity constraints and the flexible centralized release of dry bulk freight rates.
The increase in cargo volume resonates with geographical disturbances, and the dry bulk market has improved markedly since 2026
Since 2026, improvements in the dry bulk market have also been due to an increase in maritime cargo volume, expansion of long-range supplies, and a contraction in effective capacity due to geographical conflicts. The increase in iron ore exports from Australia and Brazil and the commencement of production in Simandou increased demand for iron ore shipping; Guinean bauxite exports continued to increase rapidly, and demand for tons of nautical miles was further amplified through the long route from West Africa to Asia. On the one hand, the Middle East conflict lengthens the waiting and detour time for ships. On the other hand, by limiting the supply of LNG and promoting coal-fired alternatives, the combined changes on both sides of supply and demand are driving the industry's capacity utilization rate to tighten. The tight supply and demand pattern will increase the flexibility of freight rates triggered by weather disturbances.
The dry bulk supply and demand pattern is expected to continue to improve from 2026-2027
1) Demand: The gradual commissioning of Simandou iron ore and the growth of Guinean bauxite exports will continue to contribute to long-range cargo volume, driving demand per ton of nautical miles to maintain growth; 2) Supply: The scale of on-hand orders is relatively limited, and it is expected that the fleet supply growth rate will remain low in the next few years. Since 2026, the increase in shipping volume of iron ore and bauxite has formed the basis for improving the economy. The US-Iran conflict has further improved the utilization rate of the industry's capacity by disrupting routes and increasing demand for coal substitutions. In this context, freight rates may be more sensitive to capacity disturbances caused by El Niño. If strong El Niño continues to depress rainfall in the Panama Canal Basin and causes insufficient storage during the rainy season, the Canal Authority may further reduce draught water or cut troughs. Ship waiting and detour will continue to reduce effective capacity, and dry bulk freight prices may rise above expectations under extreme circumstances.
Risk Alerts
El Niño impact level risk, economic risk, geographical risk, risk of changes in assumptions affecting calculation results