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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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- Indo Tambangraya Megah - Indonesia
- Malabar Cements Ltd - India
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- Orica Mining Services - Indonesia
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- Tata Chemicals Ltd - India
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- Ministry of Mines - Canada
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- Jaiprakash Power Ventures ltd
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- Ministry of Finance - Indonesia
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- ASAPP Information Group - India
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- CIMB Investment Bank - Malaysia
- Global Business Power Corporation, Philippines
- India Bulls Power Limited - India
- Wood Mackenzie - Singapore
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- Orica Australia Pty. Ltd.
- Kaltim Prima Coal - Indonesia
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Aboitiz Power Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Meenaskhi Energy Private Limited - India
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Bhatia International Limited - India
- Alfred C Toepfer International GmbH - Germany
- Global Green Power PLC Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Coalindo Energy - Indonesia
- Medco Energi Mining Internasional
- Sojitz Corporation - Japan
- Bulk Trading Sa - Switzerland
- Barasentosa Lestari - Indonesia
- Salva Resources Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Goldman Sachs - Singapore
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Heidelberg Cement - Germany
- London Commodity Brokers - England
- Madhucon Powers Ltd - India
- Chettinad Cement Corporation Ltd - India
- New Zealand Coal & Carbon
- Planning Commission, India
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Bukit Baiduri Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Sree Jayajothi Cements Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- Sical Logistics Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Altura Mining Limited, Indonesia
- Formosa Plastics Group - Taiwan
- Trasteel International SA, Italy
- Economic Council, Georgia
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Price Waterhouse Coopers - Russia
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Karbindo Abesyapradhi - Indoneisa
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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- Independent Power Producers Association of India
- Marubeni Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
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- Bahari Cakrawala Sebuku - Indonesia
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- Metalloyd Limited - United Kingdom
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- Indogreen Group - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- MS Steel International - UAE
- Banpu Public Company Limited - Thailand
- Vedanta Resources Plc - India
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- Latin American Coal - Colombia
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- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Thai Mozambique Logistica
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Parliament of New Zealand
- Miang Besar Coal Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Indika Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- European Bulk Services B.V. - Netherlands
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Australian Coal Association
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Minerals Council of Australia
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Anglo American - United Kingdom
- Attock Cement Pakistan Limited
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- White Energy Company Limited
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Manunggal Multi Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Energy Development Corp, Philippines
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Antam Resourcindo - Indonesia
- Meralco Power Generation, Philippines
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- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- CNBM International Corporation - China
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- Cement Manufacturers Association - India
- Central Java Power - Indonesia
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
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