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Monday, 30 March 15
WORST IS OVER FOR THE DRY BULK MARKET, BUT THE PAIN WILL REMAIN FOR YEARS TO COME, SAYS BIMCO CHIEF ANALYST - HELLENIC SHIPPING
 The current demise of the dry bulk market isn’t one to go away anytime soon. That doesn’t mean that it can’t improve, with all ship classes expected to cover their operating costs by May. Meanwhile, demolition activity isn’t enough, at least thus far, to offset oversupply of tonnage in the dry bulk market. It’s one of the reasons behind the downfall of the market in the past few months.
In an exclusive interview with Hellenic Shipping News Worldwide, BIMCO’s Chief Shipping Analyst, Mr. Peter Sand, said that the organization expects a fleet growth of 19m DWT for 2015, while already 8m DWT of bulkers have been scrapped. However, the market fundamentals remain negative, despite increasing demand during the current quarter. As Mr. Sand puts it, “we need multiple years of demand outstripping supply to turn the tables. The fact that demand may be fading somewhat now with China in an economical transition phase is not making prospects any better”.
Traditionally, the second quarter of the year signals the rebound of the dry bulk market, at least in terms of demand, with the grain/soya trades of South America kicking in. What’s your estimates about the demand side of the equation in the market going forward?
BIMCO is comfortable that demand for dry bulk ships is improving in Q2 as compared to Q1. Primarily due to increased volumes of soya and iron ore getting seaborne out of South America. Most focus will be on Brazil, with Argentina in a supporting role as soya exporter. It is positive for shipping volumes that Argentina is on track for a record harvest with 5% gathered already and the combined soybean production for Argentina and Brazil, as estimated by USDA, is to hit an all-time high at 150 million tonnes.
Nevertheless, we have to remain patient as regards to increased iron ore exports out of Brazil. In our recently published dry bulk market report we stated that Australia “won the battle” of increased sales to the Chinese in 2014. Additionally, “BIMCO expects that they will not let go of the lead in 2015, at the expense of long-haul shipping demand from Brazil.” Insight provided by Commodore Research & Consultancy supports this view – unfortunately.
For the full year, BIMCO expects demand a bit lower than estimated at the end of 2014. We are currently looking at 3-4% growth down from 4-5%. Key importer, China, is the main culprit behind this revision.
With the market plunging to all-time lows during February, do you think that the worst is behind us? Would you say that this time around, the main reason behind the dry bulk market’s demise is low demand or tonnage oversupply, which was deemed as the main “culprit” in the past?
The pain will stick around for a number of years even though the worst is behind us. The second dry bulk recovery in recent years from the trough in 2012 lasted until the autumn of 2014 where it became apparent how fragile it was. Mostly brought down by overcapacity, but also a tendency that the demand side would not remain as strong as it had been for the past decade or two. Key trigger behind this is of course the decline in coal imports from China, the still lack of nickel ore and bauxite imports and the fact that most importers (excl. China) is still not back at levels reached in 2007-2008!
If you try to look back on the big fleet growth years of 2009-2012, it grew by an annual average of 13.1%. All of those years the overcapacity increased. In 2013-2014, the fleet grew by an annual average of 5.1%, which is much more balanced, but it does not change the fact that the overcapacity is still here. We need multiple years of demand outstripping supply to turn the tables. The fact that demand may be fading somewhat now with China in an economical transition phase is not making prospects any better.
Can India support the market in a few years’ time, much like China did since the early 2000’s?
India is becoming more and more important to the dry bulk market, but they are still not to be seen as “a new China”. The two nations are very different and their development paths not alike. Unleashing the potential of India will be done at slower pace providing a solid level of demand growth going forward.
Given the challenging conditions which have prevailed so far in the market, when do you expect to see rates back above operating expenses, if not for all, at least for the majority of vessels?
BIMCO forecast freight rates for all dry bulk ships to remain below USD 9,000 per day for March-May. The trend is seen up – meaning that they should all be above OPEX cost levels in May. That is if we assume OPEX between USD 4,500 per day for the Handies going up to USD 7,500 for the Capes.
Looking at OPEX alone means Handies, which is making USD 5,766 per day in the current market, and Supras, which is making USD 6,772 per day, is getting OPEX covered. Panamaxes and Capesizes are not.
Beyond OPEX, you need to look at capital costs too. Interests, repayments, and/or depreciations on the fleet often means more to profitability than OPEX does. So in order to be “back into the black” all costs must be covered – freight rates must reach OPEX times two or three, as a rule of thumb, to earn money for supporting a going concern.
How important has the fall in bunker prices been for shipping companies, given the reduction of their operating costs? Would we have seen more bankruptcies in the segment, according to your view?
Cutting the bunker costs in halves is definitely a sizeable cost reduction on the voyage related expenditures. A cost reduction for the one paying for the fuel, that is. So who does that?
Mostly the spot operators working on a USD per tonnes basis, paying the fuel themselves, reap the benefits. So reaping the benefits of a falling cost item is a matter of negation skills too. In case your ship is out on charter, the charterer gets the cost reduction, as the owner is not paying voyage related expenditures. OPEX is only impacted to a minor extent as the price for lubricants may follow the oil price down somewhat.
Will the Capesize segment lead the way “out of the mud” once more?
Without doubt. Why? Because the demand picture as we see at BIMCO is very much biased towards the larger ship sizes of Panamax and Capesizes, whereas the demand situation for the two smaller segments is more slow growing. Bear in mind though that the current drop in rates was also lead by Capes, indicating a “normalized” market condition, but as Capes also took the deepest dive it becomes clear that overcapacity is still significant also for Capesize segment.
In this market environment, which options have ship owners to cut their losses? Out of demolition, slow steaming, or lay ups, which is the preferable choice at the moment?
All options are open, but the only significant one and most widely applied is slow steaming. Fortunately also the most effective one to counterbalance oversupply. Downside however is that is has a temporary nature as compared to demolition of a ship, which has a permanent effect on fleet growth, nominal and actual.
Demolition is also being used as a tool to turn around fortunes. The poor condition of the markets means BIMCO is forecasting total volume of dry bulk ship capacity to go higher than in 2014. Our estimate is 19m DWT for 2015 with some 8m DWT scrapped already.
In terms of investments, have asset prices adjusted accordingly either in the S&P or the newbuilding markets? Is it a good time to invest in modern tonnage, price-wise?
Newbuilding prices have not hit the floor yet; they are still by some distance higher than in 2012. Second hand prices have tumbled the most with all but Capesizes now below the 2012-lows. Capes being on par. Second hand prices has gone down by 40% over the past year, with older ships taking the biggest hits. Is now a time to invest, price-wise? Well, the return on investment seems to be potentially higher elsewhere. Despite many reasons to pick a newbuilt instead of a second hand – the eventual arrival of a more balanced market would all other things being equal be postponed by adding more tonnage to the market without removing the equivalent capacity. Should you be in need of extra tonnage, the market would be better off if those ships are found in the second hand market.
Source: Nikos Roussanoglou, Hellenic Shipping News
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Monday, 20 April 15
Q4' 2015 API 8 CFR SOUTH CHINA COAL SWAP CLOSED US$ 50.28 PMT
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 4.03 (-7.28%) per MT month over month and US$ 0.05 (-0 ...
Sunday, 19 April 15
THE OCEAN FREIGHT MARKET SHOWED STEADY THIS WEEK
COALspot.com: The freight market was fairly steady this week. The BDI was up 2.93% to 597 points week over week. The cape index was also increased ...
Friday, 17 April 15
IHS ENERGY EUROPEAN COAL OUTLOOK CONFERENCE
Attend the IHS Energy European Coal Outlook Conference 19-20 May in Nice, France and learn about timely concerns in today’s coal industry.
...
Friday, 17 April 15
COAL PRODUCTION IN THE U.S. UP THIS PAST WEEK - EIA
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 18.0 million short ...
Thursday, 16 April 15
NEW COMMODITY SUPERHIGHWAY WILL EMERGE IN CHINA, ALTERING ENERGY TRADE FLOWS - WOOD MACKENZIE
Wood Mackenzie says that China’s Go West strategy – encouraging coastal to inland flow of capital and people - will result in the forma ...
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- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Sical Logistics Limited - India
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- Bukit Makmur.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Ceylon Electricity Board - Sri Lanka
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
- Tata Chemicals Ltd - India
- Uttam Galva Steels Limited - India
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- India Bulls Power Limited - India
- Savvy Resources Ltd - HongKong
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Central Electricity Authority - India
- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- Coalindo Energy - Indonesia
- London Commodity Brokers - England
- Australian Commodity Traders Exchange
- White Energy Company Limited
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- Minerals Council of Australia
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- Maheswari Brothers Coal Limited - India
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Attock Cement Pakistan Limited
- Bhushan Steel Limited - India
- McConnell Dowell - Australia
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- Chamber of Mines of South Africa
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- Gujarat Sidhee Cement - India
- Rashtriya Ispat Nigam Limited - India
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Bharathi Cement Corporation - India
- ASAPP Information Group - India
- San Jose City I Power Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- OPG Power Generation Pvt Ltd - India
- The University of Queensland
- Merrill Lynch Commodities Europe
- Samtan Co., Ltd - South Korea
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sojitz Corporation - Japan
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Borneo Indobara - Indonesia
- Ind-Barath Power Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Toyota Tsusho Corporation, Japan
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- Indika Energy - Indonesia
- Ministry of Transport, Egypt
- European Bulk Services B.V. - Netherlands
- Siam City Cement - Thailand
- Rio Tinto Coal - Australia
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Jaiprakash Power Ventures ltd
- South Luzon Thermal Energy Corporation
- Latin American Coal - Colombia
- PNOC Exploration Corporation - Philippines
- Planning Commission, India
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Kalimantan Lumbung Energi - Indonesia
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coastal Gujarat Power Limited - India
- Posco Energy - South Korea
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Medco Energi Mining Internasional
- Directorate General of MIneral and Coal - Indonesia
- Eastern Energy - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- GVK Power & Infra Limited - India
- Bangladesh Power Developement Board
- Global Green Power PLC Corporation, Philippines
- Indian Energy Exchange, India
- Indian Oil Corporation Limited
- Ministry of Mines - Canada
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- Wilmar Investment Holdings
- Mintek Dendrill Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Videocon Industries ltd - India
- Sindya Power Generating Company Private Ltd
- Heidelberg Cement - Germany
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Kartika Selabumi Mining - Indonesia
- Anglo American - United Kingdom
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Cement Manufacturers Association - India
- Power Finance Corporation Ltd., India
- Kideco Jaya Agung - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Karbindo Abesyapradhi - Indoneisa
- Bhatia International Limited - India
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Indonesian Coal Mining Association
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