The dry bulk market is under immense pressure, as the retreating weight of China as the driver of the market is extensively felt. At a time when supply growth simply breaks new mind-blowing delivery records, the demand situation is pitching in a bit too. Currently, there are reports of Chinese customers in the steel industry that are refusing to honour their contract as prices drop, and stock piles are fuller than normal at a time when steel mills take their foot off the throttle following a red-hot production period in recent months.
The first five months average earnings of a Capesize bulker ended at US$7013/day. This is down by 13% as compared to the same period last year that earned US$8060/day. The time charter average has only been above US$10 000/day in the first 11 days of the year.
As suggested two months ago, the downward overshooting of rates was corrected upwards with stronger rates during April and the first half of May, but as the optimism in the macroeconomic picture also began to fade, so did the freight market.
China imports more coal when the price gap between Chinese thermal coal (less a heat discount) and imported thermal coal is providing an arbitrage opportunity (including freight costs). When, for instance, Australian or Indonesian coal prices become relatively cheaper, Chinese buyers are interested in importing more coal from Australia, which is good news for ship owners. This could make 2012 imports surpass those record volumes of 2011.
Following the largest single month of new built deliveries ever in January 2012, the pace of deliveries has fortunately slowed down closer to 2011 levels. During the past year, deliveries of Handysize vessels have accounted for roughly 10% of added capacity.
While Handymax and Panamax hold steady at 20% and 25% respectively as a proportion of the dry bulk fleet, Handysize is likely to diminish from current level at 13%, while Capesize is likely to expand as a proportion of the entire fleet.
The inflow of newbuilt dry bulk remained larger than expected during April and May, continuing the frantic delivery pace of Q1. During the first five months, as much as 47 million DWT set a new world record, beating the old one from 2011.
The frantic pace is a result of lower than expected delay and slippage. As this new trend appears to be sticky, it has been taken into account and subsequently lifted BIMCO’s delivery estimates for 2012 to 105 million DWT.
So far, the active fleet has grown by 5.4% in 2012 as 127 Handysizes, 140 Handymaxes, 162 Panamaxes and 115 Capesize vessels were delivered.
A total of 113 dry bulk orders were placed during the first five months. During the first five months of 2011, 253 orders were placed; this translated into an ordering slowdown of 55% in 2012.
Currently, the demolition market sentiment is weak across the board of the four main breaker nations of Bangladesh, Pakistan, India and China. As May went by, a combination of factors such as falling steel prices, a historically low Indian Rupee against the US Dollar and pretty full scrap yards following the buying spree in the first four months, resulted in a quick lowering of the demolition price (US$/ldt) offers from buyers to the tune of 20% over a couple of months.
In spite of the weak sentiment in the demolition market that is likely to slow down activity in the coming months, BIMCO is adjusting its demolition outlook slightly up from 20 million DWT for 2012 as a whole to 25 million DWT.
To sum up our forecast for the coming six weeks, BIMCO holds the view that the Capesize Time Charter Average rates will remain at depressed levels but move slowly up from current very low levels but are not expected to exceed US$10 000/day. Panamax is expected to stay in the US$5000 – 9000/day interval. For the smaller segments, BIMCO forecasts that the Supramax freight rates are likely to stay at the USD 8000 -13 000/day interval. Handysize rates, moving sideways and less erratic, are set to stay at the interval of USD 8000 – 11 000/ day.
Written by Peter Sand, BIMCO
This is the second of a four-part summary of the BIMCO Shipping Market Overview & Outlook 2012-13. The full report can be accessed here.
Read the article online at: https://www.worldcement.com/europe-cis/30072012/dry_bulk_shipping_bimco_overview_outlook_1177/