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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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Saturday, 14 February 15
SHALE GAS AND TIGHT OIL ARE COMMERCIALLY PRODUCED IN JUST FOUR COUNTRIES - EIA
KNOWLEDGE TO ELEVATE
The United States, Canada, China, and Argentina are currently the only four countries in the world that are producing com ...
Friday, 13 February 15
U.S. WEEKLY COAL PRODUCTION SHOWS 10% DECLINE
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.1 million short tons (mmst) of coal ...
Friday, 13 February 15
SMALL AND MEDIUM-SIZED SHIP OWNERS SQUEEZED OUT OF THE MARKET ON CRASHING DRY BULK MARKET AND EUROZONE CRISIS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Financing issues have started to tighten the noose in the throats of small and medium-size ship owners, who were already facing problems over the p ...
Thursday, 12 February 15
CAPESIZE: THE BEST DESCRIPTION FOR THE MARKET IS, FLAT - FEARNRESEARCH
Handy
The handy and supra market is also being affected by the marginal volume of activity in the commodity sales. We see a small upturn in the T ...
Thursday, 12 February 15
DRY BULK OWNERS SCRAP MORE VESSELS, AS MARKET REACHES HISTORICAL LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has reached historical lows this week, with the Baltic Dry Index (BDI) now trading at levels below operating expense levels for ...
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- CNBM International Corporation - China
- Interocean Group of Companies - India
- Borneo Indobara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Iligan Light & Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Meenaskhi Energy Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Grasim Industreis Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
- GMR Energy Limited - India
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Marubeni Corporation - India
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- GVK Power & Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bukit Makmur.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- Romanian Commodities Exchange
- Kapuas Tunggal Persada - Indonesia
- OPG Power Generation Pvt Ltd - India
- Siam City Cement - Thailand
- Minerals Council of Australia
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- SMG Consultants - Indonesia
- International Coal Ventures Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Videocon Industries ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Edison Trading Spa - Italy
- Ind-Barath Power Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Energy Link Ltd, New Zealand
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Electricity Authority, New Zealand
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Bukit Asam (Persero) Tbk - Indonesia
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Kaltim Prima Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Energy Development Corp, Philippines
- Planning Commission, India
- Indo Tambangraya Megah - Indonesia
- Independent Power Producers Association of India
- Renaissance Capital - South Africa
- Kepco SPC Power Corporation, Philippines
- Dalmia Cement Bharat India
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- White Energy Company Limited
- SN Aboitiz Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Metalloyd Limited - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Riau Bara Harum - Indonesia
- Parliament of New Zealand
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Thai Mozambique Logistica
- Miang Besar Coal Terminal - Indonesia
- Vizag Seaport Private Limited - India
- Anglo American - United Kingdom
- Port Waratah Coal Services - Australia
- Aditya Birla Group - India
- Petrochimia International Co. Ltd.- Taiwan
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- PTC India Limited - India
- Ministry of Transport, Egypt
- Bhatia International Limited - India
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- Meralco Power Generation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- Tamil Nadu electricity Board
- Semirara Mining Corp, Philippines
- Australian Coal Association
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Bayan Resources Tbk. - Indonesia
- Baramulti Group, Indonesia
- Ministry of Mines - Canada
- Bhoruka Overseas - Indonesia
- PowerSource Philippines DevCo
- Manunggal Multi Energi - Indonesia
- Bharathi Cement Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- Deloitte Consulting - India
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- The University of Queensland
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Uttam Galva Steels Limited - India
- Kobexindo Tractors - Indoneisa
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Chettinad Cement Corporation Ltd - India
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Australian Commodity Traders Exchange
- Africa Commodities Group - South Africa
- Timah Investasi Mineral - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Parry Sugars Refinery, India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- London Commodity Brokers - England
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- South Luzon Thermal Energy Corporation
- Posco Energy - South Korea
- Billiton Holdings Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Asmin Koalindo Tuhup - Indonesia
- Maheswari Brothers Coal Limited - India
- Georgia Ports Authority, United States
- MS Steel International - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Madhucon Powers Ltd - India
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Eastern Coal Council - USA
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Coal and Oil Company - UAE
- Petron Corporation, Philippines
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- CIMB Investment Bank - Malaysia
- Orica Australia Pty. Ltd.
- Oldendorff Carriers - Singapore
- Mjunction Services Limited - India
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Rashtriya Ispat Nigam Limited - India
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
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