Editorial comment
In April 2024, Australia’s Bureau of Meteorology announced the end of El Niño and remarked that La Niña could follow from July. Overall, BIMCO believes the end of El Niño could lead to weaker demand growth for dry bulk shipping and it is important to highlight some patterns that may emerge.
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The El Niño-Southern Oscillation is a climate phenomenon that occurs in the Pacific Ocean. Fluctuations in surface ocean temperatures are typically associated with certain climate conditions across different geographies, although they are not guaranteed to happen. El Niño occurs when temperatures are above normal and La Niña when they are below.
In Panama, El Niño typically causes there to be a drier climate between July and December, cutting the rainy season short. In 2023, lower rainfall led to lower water levels in the Gatun Lake, restricting transits through the Panama Canal. Bulk carriers were particularly affected, as they are often unable to schedule a transit slot far in advance; unlike other sectors with more predictable schedules, such as container vessels or cruise ships. As such, bulk carrier capacity transiting the canal fell 77.3% y/y, between January and April 2024. Consequently, bulk carriers increasingly sailed around the Cape of Good Hope, boosting sailing distances and tightening the market.
The end of El Niño may help the water levels in Gatun Lake recover and a shift to La Niña could further support it by bringing additional rainfall. This would lead to less rerouting away from the canal and as such, weaken demand.
Out of the major bulk commodities, coal could be most affected by the end of El Niño. Currently, 31.1% of coal shipments are bound for South and Southeast Asia, where the climate is usually drier and warmer under El Niño. This boosts electricity demand from air conditioning and weakens hydroelectric power generation. In India, conditions were particularly favourable for seaborne imports. In the 2023/24 financial year, hydroelectric power generation fell 16.3% y/y, as water levels reached a five-year low in March 2024.
Additionally, under neutral conditions and especially under La Niña, the monsoon rains could be stronger and temperatures cooler. This would dampen coal demand from 2H24 onward.
For grain shipping, there is no clear positive or negative effect from the phenomena, but the market may see a shift in volume from the different exporters. Argentina typically benefits from El Niño, meaning it could see a smaller harvest and subsequent exports in 2025. On the other hand, additional rainfall could lead to stronger Indian rice and Australian wheat exports in 2025. In the US, La Niña’s impact is more complex, but higher rainfall can be unfavourable for maize crops. Brazil is also usually affected by these phenomena, but the impact on yields is less clear.
Finally, the end of El Niño could lead to more prevalent disruptions in iron ore mining. El Niño typically brings a drier climate to Brazil and Australia’s mining regions, which are prone to disruptions amid high rainfall.
In conclusion, the end of El Niño could affect dry bulk shipping demand, particularly if La Niña follows it. In the short to medium-term, an increase in Panama Canal transits and weaker coal shipments to South and Southeast Asia could dampen demand growth. Moreover, at the start of 2025, its impacts on grain shipments could manifest, as the Southern Hemisphere harvest season begins.
