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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, 30 March 15
Q3' 15 CFR SOUTH CHINA COAL SWAP: DECLINED 8.7% M-M; 12.77% Y-TO-D
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 5.00 (-8.70%) per MT month over month and US$ 1.33 (-2 ...
Monday, 30 March 15
Q2' FOB NEWCASTLE COAL SWAP CLOSED 4.47% HIGHER THAN Q4' CLOSING PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 5.42 per MT (-10.43%) month over month and US$ 1.60 (-3.32%) w ...
Sunday, 29 March 15
INDO - INDIA: SUPRAMAX & PANAMAX FREIGHT MARKET STEADY
COALspot.com: The freight market was almost stable as all segments slightly up except Panamax sector.
The BDI was up by just 0.85% week over w ...
Saturday, 28 March 15
IS NORTHERN EUROPE THE NEW MINING ELDORADO?
The Europe Mining 2015 Summit, organised by Global Summits organizer IRN on 17-18 June in Amsterdam, The Netherlands, will gather senior level repr ...
Saturday, 28 March 15
THE DRY BULK FLEET AT BREAKING POINT - CLARKSONS
The severe oversupply in the bulkcarrier fleet has contributed to the current trough in the dry bulk market, putting considerable financial pressur ...
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- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Planning Commission, India
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Chettinad Cement Corporation Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Power Finance Corporation Ltd., India
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Mercator Lines Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Latin American Coal - Colombia
- Independent Power Producers Association of India
- ICICI Bank Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Kaltim Prima Coal - Indonesia
- Sakthi Sugars Limited - India
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhushan Steel Limited - India
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- Malabar Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Eastern Energy - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Deloitte Consulting - India
- Larsen & Toubro Limited - India
- GAC Shipping (India) Pvt Ltd
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Georgia Ports Authority, United States
- Ministry of Finance - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement - Thailand
- Electricity Generating Authority of Thailand
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- Petrochimia International Co. Ltd.- Taiwan
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Antam Resourcindo - Indonesia
- Vedanta Resources Plc - India
- Holcim Trading Pte Ltd - Singapore
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- Australian Commodity Traders Exchange
- The University of Queensland
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- MS Steel International - UAE
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Siam City Cement PLC, Thailand
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Lanco Infratech Ltd - India
- Sical Logistics Limited - India
- Global Green Power PLC Corporation, Philippines
- Commonwealth Bank - Australia
- Attock Cement Pakistan Limited
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
- PTC India Limited - India
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Grasim Industreis Ltd - India
- Kideco Jaya Agung - Indonesia
- VISA Power Limited - India
- Economic Council, Georgia
- Meenaskhi Energy Private Limited - India
- Savvy Resources Ltd - HongKong
- Bukit Asam (Persero) Tbk - Indonesia
- Renaissance Capital - South Africa
- Miang Besar Coal Terminal - Indonesia
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- SMG Consultants - Indonesia
- McConnell Dowell - Australia
- The Treasury - Australian Government
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Simpson Spence & Young - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Ministry of Mines - Canada
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- Star Paper Mills Limited - India
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Karbindo Abesyapradhi - Indoneisa
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- GN Power Mariveles Coal Plant, Philippines
- GVK Power & Infra Limited - India
- Aditya Birla Group - India
- Bharathi Cement Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Xindia Steels Limited - India
- CIMB Investment Bank - Malaysia
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Australian Coal Association
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- SMC Global Power, Philippines
- Essar Steel Hazira Ltd - India
- LBH Netherlands Bv - Netherlands
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Intertek Mineral Services - Indonesia
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- Formosa Plastics Group - Taiwan
- European Bulk Services B.V. - Netherlands
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Eastern Coal Council - USA
- Mjunction Services Limited - India
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Binh Thuan Hamico - Vietnam
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Posco Energy - South Korea
- Straits Asia Resources Limited - Singapore
- GMR Energy Limited - India
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