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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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Tuesday, 17 March 15
GAS TO CHALLENGE COAL IN THE ASIAN POWER GENERATION MIX - WOOD MACKENZIE
KNOWLEDGE TO ELEVATE
Wood Mackenzie says that coal is facing increasing competition from gas in the power sector. Coal has dominated as the fu ...
Tuesday, 17 March 15
RIO TINTO PAID US$ 7.1 BILLION IN TAXES IN 2014
COALspot.com: Rio Tinto has published its latest Taxes paid report, detailing the US$7.1 billion in taxes paid by the company around the world in 2 ...
Tuesday, 17 March 15
NEARLY 17% OF US COAL PRODUCTION UNECONOMIC AT CURRENT MARKET PRICING - WOOD MACKENZIE
COALspot.com: Close to 17% of forecast 2015 US coal production is at risk of idling or closure, totalling 162 million short tons (Mst), as these mi ...
Tuesday, 17 March 15
Q3' SA COAL SWAP CLOSED $57.30 PMT W/E 13 MARCH
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and gained week on week.
The Q2 swap has fe ...
Monday, 16 March 15
MAKING THE WORLD GO ROUND - SEABORNE TRADE! - CLARKSONS
Money, or even love if you prefer, are claimed to make the world go round. For the shipping world, however, it’s trade that sets things spinn ...
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- Independent Power Producers Association of India
- Cigading International Bulk Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Indian Oil Corporation Limited
- Formosa Plastics Group - Taiwan
- Carbofer General Trading SA - India
- Edison Trading Spa - Italy
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- Posco Energy - South Korea
- Renaissance Capital - South Africa
- Energy Development Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Toyota Tsusho Corporation, Japan
- Eastern Coal Council - USA
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Bhatia International Limited - India
- Manunggal Multi Energi - Indonesia
- Parry Sugars Refinery, India
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- PNOC Exploration Corporation - Philippines
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- Thiess Contractors Indonesia
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Simpson Spence & Young - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- ICICI Bank Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Standard Chartered Bank - UAE
- Riau Bara Harum - Indonesia
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Gujarat Mineral Development Corp Ltd - India
- Chamber of Mines of South Africa
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- White Energy Company Limited
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Cement Manufacturers Association - India
- Vijayanagar Sugar Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Mjunction Services Limited - India
- Sical Logistics Limited - India
- Borneo Indobara - Indonesia
- Agrawal Coal Company - India
- PetroVietnam Power Coal Import and Supply Company
- Global Green Power PLC Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Salva Resources Pvt Ltd - India
- Dalmia Cement Bharat India
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Maharashtra Electricity Regulatory Commission - India
- Sarangani Energy Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Mintek Dendrill Indonesia
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- Karbindo Abesyapradhi - Indoneisa
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Makarim & Taira - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sojitz Corporation - Japan
- Essar Steel Hazira Ltd - India
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- Savvy Resources Ltd - HongKong
- Meralco Power Generation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- PowerSource Philippines DevCo
- Electricity Authority, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Grasim Industreis Ltd - India
- McConnell Dowell - Australia
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Leighton Contractors Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- PTC India Limited - India
- Therma Luzon, Inc, Philippines
- Videocon Industries ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- Indo Tambangraya Megah - Indonesia
- Bhoruka Overseas - Indonesia
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Vedanta Resources Plc - India
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Metalloyd Limited - United Kingdom
- Energy Link Ltd, New Zealand
- Latin American Coal - Colombia
- The Treasury - Australian Government
- The State Trading Corporation of India Ltd
- Maheswari Brothers Coal Limited - India
- Sree Jayajothi Cements Limited - India
- GMR Energy Limited - India
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Indika Energy - Indonesia
- India Bulls Power Limited - India
- Planning Commission, India
- Goldman Sachs - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vizag Seaport Private Limited - India
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Jindal Steel & Power Ltd - India
- Gujarat Sidhee Cement - India
- South Luzon Thermal Energy Corporation
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Orica Australia Pty. Ltd.
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Kalimantan Lumbung Energi - Indonesia
- Global Business Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Medco Energi Mining Internasional
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Africa Commodities Group - South Africa
- Central Electricity Authority - India
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Australian Coal Association
- Ambuja Cements Ltd - India
- Wilmar Investment Holdings
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Jaiprakash Power Ventures ltd
- Interocean Group of Companies - India
- Ministry of Mines - Canada
- Australian Commodity Traders Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- London Commodity Brokers - England
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
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