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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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Sunday, 08 March 15
FREIGHT RATES FROM INDONESIA TO INDIA IS TRENDING UP
COALspot.com: The freight market continued to see gains this week and all the indices were rose except for Cape index. The BDI was increased 4.62 p ...
Friday, 06 March 15
BALTIC DRY INDEX: IS THIS POWERFUL INDICATOR SIGNALING A GLOBAL RECESSION? - STREET AUTHORITY
Although memories of the Great Recession linger, a case can be made that better days lie ahead.
That’s because central banks around the ...
Friday, 06 March 15
U.S. WEEKLY COAL PRODUCTION ROSE 3.5% WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.1 million short tons (mmst) of coal ...
Thursday, 05 March 15
PANAMAX : THE ATLANTIC ROUND IS NOW PAYING AROUND US$ 5K PER DAY
COALspot.com: Handy - The activity in the handy/supra segment is back. “ We see more fresh cargo in the market for 2nd half March dates ...
Thursday, 05 March 15
INDIA WILL BE THE LARGEST DRIVER OF GLOBAL SEABORNE COKING COAL DEMAND GROWTH IN 2015 - WOOD MACKENZIE
Global demand growth will remain weak because of China’s negative demand growth.
COALspot.com: At Coaltrans India, Wood Mackenzie says I ...
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- McConnell Dowell - Australia
- Kalimantan Lumbung Energi - Indonesia
- Coalindo Energy - Indonesia
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Anglo American - United Kingdom
- Malabar Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- SMG Consultants - Indonesia
- Directorate Of Revenue Intelligence - India
- Star Paper Mills Limited - India
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Kideco Jaya Agung - Indonesia
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- Ceylon Electricity Board - Sri Lanka
- Thai Mozambique Logistica
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- Bhoruka Overseas - Indonesia
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Energy Development Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Wilmar Investment Holdings
- Eastern Coal Council - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Georgia Ports Authority, United States
- Indika Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Sidhee Cement - India
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Kepco SPC Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Siam City Cement - Thailand
- Holcim Trading Pte Ltd - Singapore
- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Bhatia International Limited - India
- CIMB Investment Bank - Malaysia
- Chamber of Mines of South Africa
- Borneo Indobara - Indonesia
- Port Waratah Coal Services - Australia
- Electricity Generating Authority of Thailand
- Larsen & Toubro Limited - India
- Cigading International Bulk Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Sical Logistics Limited - India
- SMC Global Power, Philippines
- VISA Power Limited - India
- Australian Coal Association
- Electricity Authority, New Zealand
- Karaikal Port Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Essar Steel Hazira Ltd - India
- San Jose City I Power Corp, Philippines
- Kumho Petrochemical, South Korea
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Romanian Commodities Exchange
- Bharathi Cement Corporation - India
- Planning Commission, India
- Medco Energi Mining Internasional
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Indonesian Coal Mining Association
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Ministry of Mines - Canada
- PowerSource Philippines DevCo
- The University of Queensland
- Baramulti Group, Indonesia
- AsiaOL BioFuels Corp., Philippines
- Aboitiz Power Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Goldman Sachs - Singapore
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Ind-Barath Power Infra Limited - India
- Mercuria Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- Riau Bara Harum - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- India Bulls Power Limited - India
- Dalmia Cement Bharat India
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- Formosa Plastics Group - Taiwan
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Power Finance Corporation Ltd., India
- Salva Resources Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- ICICI Bank Limited - India
- Parry Sugars Refinery, India
- Interocean Group of Companies - India
- Directorate General of MIneral and Coal - Indonesia
- Antam Resourcindo - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Agrawal Coal Company - India
- Orica Australia Pty. Ltd.
- Kohat Cement Company Ltd. - Pakistan
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- Madhucon Powers Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Transport, Egypt
- Central Electricity Authority - India
- Manunggal Multi Energi - Indonesia
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Trasteel International SA, Italy
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Simpson Spence & Young - Indonesia
- PTC India Limited - India
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Singapore Mercantile Exchange
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Economic Council, Georgia
- Independent Power Producers Association of India
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Africa Commodities Group - South Africa
- Heidelberg Cement - Germany
- Aditya Birla Group - India
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- Deloitte Consulting - India
- Lanco Infratech Ltd - India
- MS Steel International - UAE
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Iligan Light & Power Inc, Philippines
- Grasim Industreis Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- White Energy Company Limited
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- The State Trading Corporation of India Ltd
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