The dry bulk market has been on a freefall this week after a rocky start to the new year. Yesterday, the BDI (Baltic Dry Index) the industry's benchmark plunged by 7.38% to reach just 1,105 points, almost half of where it stood as 2011 ended. These past few sessions have reminded ship owners just how fragile the market remains, as the pace of the fall of freight rates is equivalent of the crisis days of 2008, now 3.5 years ago. Capesizes lost a staggering 9.74 percent just yesterday and more than 20% since the start of 2012, an indicative sign of the lack of demand in the market and a flood of newbuilding deliveries.

In its latest weekly report, shipbrokers Intermodal said that a rebound in freight rates would be hard to be seen in 2012, unless Chinese growth exceeds the pundits expectations or unless another demand driver like China appear in the picture. "India may play this role as its ever increased demand to import coal to feed its power plants could absorb some tonnage and support freight rates especially for the bigger vessels. Already the state owned mining company Coal India plans to open new mines in Indonesia in order to cover future needs. Although it is not possible to find such support from one day to another, India will definitely play its catalytic role as a demand driver and supporter of the dry bulk market for the next couple of years" said Intermodal's Yannis Olziersky.

He went on to mention that "the global economic outlook for 2012 is not looking much healthier than last year and with an increased supply of new vessels hitting the water, shipowners are getting prepared for an even worse market then the one that past. The target for this year should be the same as 2011, weathering the lows.

Demand wise analysts are expecting the volume of cargoes which are transported by dry bulk carriers to show some growth; however same are expecting 2012 to be the weakest growth in demand in at least a decade, especially for shipments of iron ore. This is due to the slowing Chinese growth which is expected to drop to 8.5 percent this year compared with 9.2 percent in 2011. Analyst forecast that China is expected to import 5.8 percent more iron ore this year against the 10 percent in 2011, a quite significant difference which will logically put pressure on freight rates, bearing in mind that the industry is expected to face the biggest fleet growth in recent history. Already the rally in capesize rates which began in August is fading and the BCI has lost 40 percent since its peak in December 12th" said Mr. Olziersky.

On the demolition front, Clarkson Hellas said earlier this week that "2012 has begun very positively with news that Bangladesh is on the verge of re-opening and on the back of a stable currency and improved steel prices domestically, India increasing their price indications and Chinese breakers continuing their aggressive stance from last year. However, on paper everything looks rosy, but an air of caution is still to be adopted as currently, Bangladesh remains closed until the hearing due next Thursday 12th, and Indian rates are on the rise but only because some cash intermediaries appear to be speculating on the re�]opening of the Bangladeshi market and as such, the current improved rates seen for tonnage basis delivery India are not being justified on the waterfront at Alang. The concern for most is the tremendous amount of tonnage being proposed to the market since the turn of the year and whether the current firm rates can hold. Many parties believe that when Bangladesh officially re-opens the rates will increase substantially in excess of the USD 500/ldt level, however this is again pure speculation and if the amount of new tonnage witnessed in the market over the last few days is anything to go by, then the conveyor belt of tonnage supply may affect the breakers mentality in the near future even if Bangladesh does re-open next week as predicted" said Clarkson Hellas.

Intermodal also mentioned in its analysis that "during the first three quarters of the year, demolition activity peaked up, with many vessels heading towards the beach, setting a record at a time when the industry needed it. However the last quarter of the year, activity slowed down as prices softened and cash Buyers were reluctant to acquire more tonnage, mainly due to the extreme fluctuation of the Indian Rupee against the USD and the prevailing uncertainty on steel prices. The good news however, is that Bangladesh is finally set to ratify its regulations on the 12th January and get the green light from the Court to import vessels once again; therefore we believe that this will bring stability and safety to the market, hence scraping activity should logically pick up again, which is of course good news for the oversupplied market" concluded the Piraeus-based shipbroker.
Source: Nikos Roussanoglou, Hellenic Shipping