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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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Wednesday, 25 March 15
MARKET INSIGHT: TANKER CHARTERING - KATERINA RESTIS
The 1st of January 2015, as broadly reported, denoted the beginning date of new and progressive emission regulations for vessels operating within t ...
Wednesday, 25 March 15
AUSTRALIA SET TO ONCE AGAIN BE THE WORLD'S LARGEST COAL EXPORTER - COAL, MINERALS COUNCIL OF AUSTRALIA
Greg Evans, Executive Director - Coal, Minerals Council of Australia
Media Release: The latest Resources and Energy Quarterly published by the ...
Wednesday, 25 March 15
AUSTRALIA UPSTREAM ENERGY FIRMS FACE RISING OIL PRICE EXPOSURE - FITCH
Fitch Ratings says the Australian oil and gas companies involved in exploration and production face higher exposure to oil price-linked revenues, w ...
Wednesday, 25 March 15
2014 : UK COAL IMPORTS DECLINED 17%; GERMANY COAL IMPORTS UP 6%
Hard Coal Market 2014: Despite The Energy Turnaround, Hard Coal Imports To Germany Rise By More Than 6%, Although Hard Coal-Fired Power Generation ...
Tuesday, 24 March 15
A WEAK WEEK FOR FOB INDONESIA COAL SWAP
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 drop month on month and week over week.
The Q2 swap fell US$ 2.48 (5.12%) month ...
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- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
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- Jaiprakash Power Ventures ltd
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- Cement Manufacturers Association - India
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Minerals Council of Australia
- MS Steel International - UAE
- Petron Corporation, Philippines
- Trasteel International SA, Italy
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- Leighton Contractors Pty Ltd - Australia
- Aditya Birla Group - India
- Posco Energy - South Korea
- Australian Coal Association
- Bhatia International Limited - India
- Bayan Resources Tbk. - Indonesia
- Pendopo Energi Batubara - Indonesia
- San Jose City I Power Corp, Philippines
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Kideco Jaya Agung - Indonesia
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
- Orica Australia Pty. Ltd.
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- GMR Energy Limited - India
- India Bulls Power Limited - India
- Aboitiz Power Corporation - Philippines
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Meenaskhi Energy Private Limited - India
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Medco Energi Mining Internasional
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- Videocon Industries ltd - India
- Goldman Sachs - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- PNOC Exploration Corporation - Philippines
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Agrawal Coal Company - India
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Global Green Power PLC Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Eastern Coal Council - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Antam Resourcindo - Indonesia
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- McConnell Dowell - Australia
- Timah Investasi Mineral - Indoneisa
- Meralco Power Generation, Philippines
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- Baramulti Group, Indonesia
- Jindal Steel & Power Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Central Java Power - Indonesia
- Sojitz Corporation - Japan
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- Straits Asia Resources Limited - Singapore
- Thiess Contractors Indonesia
- Lanco Infratech Ltd - India
- Indika Energy - Indonesia
- Grasim Industreis Ltd - India
- Port Waratah Coal Services - Australia
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- White Energy Company Limited
- Ceylon Electricity Board - Sri Lanka
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CNBM International Corporation - China
- Heidelberg Cement - Germany
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- Marubeni Corporation - India
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Star Paper Mills Limited - India
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Tata Chemicals Ltd - India
- Electricity Generating Authority of Thailand
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Siam City Cement PLC, Thailand
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- The State Trading Corporation of India Ltd
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- Attock Cement Pakistan Limited
- Ind-Barath Power Infra Limited - India
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The University of Queensland
- Formosa Plastics Group - Taiwan
- Sakthi Sugars Limited - India
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Renaissance Capital - South Africa
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- Power Finance Corporation Ltd., India
- Ambuja Cements Ltd - India
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Manunggal Multi Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Banpu Public Company Limited - Thailand
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- Parliament of New Zealand
- Binh Thuan Hamico - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- ASAPP Information Group - India
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Energy Link Ltd, New Zealand
- Barasentosa Lestari - Indonesia
- Siam City Cement - Thailand
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
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- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Romanian Commodities Exchange
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
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