We cannot escape the fact that China still plays a key role in the need for seaborne raw materials and this has been consistently strong over recent years. Iron ore, coke, coal and other bulk imports have buoyed the market and congestion in ports has in my opinion, certainly played a part in the recent increase in freight rates.
It is important for us not to be fooled by any false dawns. Yes, the future is looking better and the smart money tells us that a 6% increase in global demand for seaborne trade is forecast for 2010. However, I hear on a daily basis that vessels are easy to find and a hard bargain can be negotiated, if the exporter stands his ground. Surely, both points of view cannot be correct. It is the parameters we work to that need to be considered carefully in order to reach a balanced conclusion. The type of cargo, the size of vessel and the heading must be taken into consideration before we bask in the warm rays of an upturn.
The movement of goods from South America to the Far East has indeed seen prices rise to a level not seen for a couple of years or more, but this is only in Panamax size vessels carrying 90 000 t or more. This is not a pointer for the market as a whole and is a great example of what I am saying. We have to put all the pieces in place before we congratulate ourselves on completing the jigsaw.
In conclusion, the dry bulk markets fortunes are closely allied with those of China. I think that the forecasts will bare fruit and we will continue to see increased trade and shipping, driven by demand. The key factor will be in our ability to know where reality ends and hope begins.
Once again China seems to be the barometer for the rest of the world. The demand for commodities over the rest of 2010 and into 2011 will be very much dictated by the state of recovery within the Chinese economy itself.
China’s relationship with the dollar will ultimately maintain the recently found stability in the commodity markets or indeed, act as a catalyst in its undoing. At the moment, the forecasts look promising and the volatility in commodity prices has eased somewhat. ‘Caution’ would be the word of the day.
Dry bulk status
Dry bulk shipping is quite possibly one of the simplest industries for an investor to approach. The nature of the industry is to acquire ships, contract with customers and deliver the cargo. There are two major risks to any shipping investment: supply and demand. Pricing in this industry is extremely sensitive to even minor changes in the economic balance and there is practically no such thing as an economic moat in this sector. The first four months of 2010 saw ups and downs for the BDI, with the index hovering around 3000. However, May brought along stronger rates, particularly to Capesize. That lifted the BDI to 4209 on 26th May, which is almost the level at the time of writing.
With Panamax, Supramax and Handysize rates being firm on an upward trend, the dry bulk market continues to deliver, on the back of strong demand and despite a continuously large inflow of new tonnage. There is valid concern that freight rates may come under greater pressure in the second half of the year.
With that in mind, we continue to take things one step at a time, as there will be further opportunities to benefit from changes in short-term market dynamics, as we have seen in the dry bulk equity, FFA and physical markets over recent weeks.
Author: Thomas Risstubben, Chairman Of The Board, Ohlsson International Ltd
Read the article online at: https://www.worldcement.com/europe-cis/30062010/global_shipping_and_trade_trends-/