The shipping market and underlying profitability can only improve if the fundamental conditions (supply and demand) also improve. Therefore transportation of larger volumes, longer sailing distances in general or a lower increase of dry-bulk fleet size is a prerequisite for better markets to arrive.
The freight rates for all dry-bulk segments have been low throughout 2015, the July/August spike for Capesize ships being the short-lived exception. Averages for the first eight months of 2015 range from US$5605 per day for a Handysize to US$8163 per day for a Capesize.
The poorest freight market on record is due to a combination of demand weakness and capacity abundance. As China is going through a period of transition that does not favour the dry-bulk shipping industry, the prime driver is out of the picture. Capacity has been abundant for years, so it’s the change to the demand side, the variable that the industry cannot impact, which is at the epicentre in 2015.
Speaking of the contributing factors to an improved shipping market, the dry-bulk fleet has grown only marginally during the first nine months. The inflow of 39.7 million DWT, which has been offset by demolition of 23.8 million DWT, means a fleet growth of just 2.1%. Continuance of a low fleet growth is vital to achieving an eventual recovery and a return of sustainable earnings for the industry. A central element in that equation is a low level of new orders. This has been accomplished by a landslide margin. In Clarksons orderbook statistics, there were only 84 new contracts recorded at the end of August. Such a cautious attitude is quite the opposite of what happened less than two years ago, when capacity equal to the year-to-date amount in 2015 (4.7 million DWT) was contracted in just 16 days.
Demolition also holds a key position in today’s and tomorrow’s fleet growth level. Although 306 ships have left the fleet so far in 2015, owners’ interest in making use of the demolition “tool” to limit supply growth seems to have evaporated completely over the summer.
In early July, BIMCO cautioned that a new full year record level of demolished capacity would not arrive in spite of a record first half of the year. Spiking Capesize rates immediately cooled owners’ interest in the hope that a market rebound was around the corner.
When traditional demand growth is not increasing, it is important to look harder for future growth. Here the glut of high-iron-content ore in the international markets and the following low prices may finally bring around a sizeable substitution in consumption by Chinese steel mills, away from the domestically produced low-iron-content ore, in favour of imports.
Calculations done by BIMCO show that monthly imports into China could be 20mt higher per month (+26%). A total of an extra 240 million t on an annual basis could bring deployment for around 155 Capesizes, assuming an unchanged distribution between Australian and Brazilian imports (75%/25%).
For the coming months: September-November, BIMCO expects the supply of new ships to stay subdued and slow paced towards the end of the year. The deteriorating demand-side conditions are expected to be somewhat reversed as we move into the stronger months of the year.
Read the article online at: https://www.worldcement.com/europe-cis/16102015/bimco-shipping-market-overview-outlook-789/
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