How bad can a market be? Extremely bad if you look at the dry bulk shipping market since early December 2014. The fourth quarter of 2014 was hugely disappointing, ending in complete despair, with Capesize rates diving below US$5000 per day in mid-December. On 18 February, the BDI hit an all-time low of 509; Supramax freight rates were the only ones above US$5000 at US$5002 per day.
The development of the dry bulk market is closely tied with that of China’s appetite for commodities; this goes for the good times in the past as well as the current challenging times. Despite the fact that GDP growth is still running high in China at 7.4%, the need for imported commodities was somewhat weak last year. Iron ore imports were a strong support once again, growing by 112.6 million t (13.7%) helped along by a large drop in price, but coal was a devastating story in spite of a drop in prices too. Thermal coal imports were down from 192 million t in 2013 to 165.5 million t in 2014, with the trend likely to continue if hydropower generation hits another strong year. Moreover, the new Chinese import regulations on coal quality (sulfur and ash content) contributed further to the decline in imports in January when total volumes (including coking coal and lignite) were at their lowest monthly level since May 2011 according to SSY.
Despite Chinese steel production surging to a new all-time high of 822.7 million t in 2014 (+0.9%), coking coal imports were down by 14.6 million t to 60.8 million t in 2014 (-31.6%). With falling domestic demand for steel, tax rebates assisted a surge in exports to neighbouring Asian customers. 2015 could see these rebates changed or removed, which would in turn reduce the incentive for steel mills to keep up production.
US coal exports were also a sad story in 2014 as their biggest export market, Europe, lowered its demand throughout the year. The US is primarily a coking coal exporter, but export demand is driven by price on the global market. As the US is the most distant of all exporters, high prices and tight supply are needed to keep up volumes; neither was present in 2014. Thermal coal exports dropped by 34% to 28.9 million t.
According to Tradeviews.net, cement trade was one of the best performers last year with a growth rate of 10%, reaching approximately 179 million t. Imports into South Korea were likewise strong, growing by 7% to reach 275 million t.
Demolition of dry bulk tonnage was relatively modest for a long time when considering the fundamental conditions of the freight market. However, recent extremely poor freight markets have stirred it up. At the end of February, 68 ships with a combined capacity of 5 million DWT had been demolished since the turn of year, out of which half were of Capesize capacity with an average age of 21 years. This compares to the 27 years average age of the Handysizes going for recycling. The tough trades of the Capesizes cut their commercial life shorter than that of Handysizes. The extremely low earnings have pushed more ships out of the market.
The youngest ships being recycled overall were a pair of Panamaxes built in 1998, followed by five Capesizes built in 1996. At the other end of the scale, 20 Handysizes built between 1980 and 1985 were recycled.
During the first two months of 2015, 11 million DWT of new dry bulk capacity were delivered into the active fleet. As BIMCO expected, we have seen the majority being newbuilt Supramaxes whereas the delivery pace of Panamax is now coming slightly down. 54 Handymaxes/Supramaxes have already been delivered by the end of February. This compares to 199 for the full year of 2014 [40 000 – 67 000 DWT].
In the Panamax segment, just 22 ships have been delivered by end-February, as compared to 160 ships (4.6% in annual fleet growth) for the full year of 2014 [67 000 – 100 000 DWT]. For 2015 as a whole, Panamax deliveries are estimated to go as high as 150 ships (3.3% in annual fleet growth).
The troubles in the freight markets have for once also been seen in the order book where interest for new contracts has been subdued. The overall order book dropped to 158.2 million DWT from 168.6 three months ago.
It remains an imperative for a sustainable freight market recovery that new contracts remain scarce for an extended amount of time. Fortunately, the new-building prices offered by the shipyards are still 10 – 15% above the lowest of 2012 – 2013 and are not seen as very attractive.
Written by Peter Sand, BIMCO Chief Shipping Analyst. This is an extract from the latest BIMCO Shipping Market Overview and Outlook Report. It has been adapted to meet World Cement’s house style.
More shipping market analysis can be found at www.bimco.org.
Read the article online at: https://www.worldcement.com/special-reports/19032015/bimco-dry-bulk-shipping-549/