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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 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
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- Global Coal Blending Company Limited - Australia
- Sree Jayajothi Cements Limited - India
- Renaissance Capital - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jindal Steel & Power Ltd - India
- Global Green Power PLC Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Heidelberg Cement - Germany
- Mercator Lines Limited - India
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Planning Commission, India
- Bulk Trading Sa - Switzerland
- Parliament of New Zealand
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Timah Investasi Mineral - Indoneisa
- Bharathi Cement Corporation - India
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Economic Council, Georgia
- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- Indonesian Coal Mining Association
- Electricity Authority, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- White Energy Company Limited
- Petrochimia International Co. Ltd.- Taiwan
- GVK Power & Infra Limited - India
- Vizag Seaport Private Limited - India
- GMR Energy Limited - India
- MS Steel International - UAE
- Jaiprakash Power Ventures ltd
- Oldendorff Carriers - Singapore
- IHS Mccloskey Coal Group - USA
- SMG Consultants - Indonesia
- Orica Australia Pty. Ltd.
- San Jose City I Power Corp, Philippines
- Siam City Cement PLC, Thailand
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Port Waratah Coal Services - Australia
- Simpson Spence & Young - Indonesia
- Global Business Power Corporation, Philippines
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chamber of Mines of South Africa
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- CIMB Investment Bank - Malaysia
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Deloitte Consulting - India
- Ministry of Mines - Canada
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- New Zealand Coal & Carbon
- Power Finance Corporation Ltd., India
- Agrawal Coal Company - India
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Coalindo Energy - Indonesia
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- CNBM International Corporation - China
- Pendopo Energi Batubara - Indonesia
- Formosa Plastics Group - Taiwan
- Sakthi Sugars Limited - India
- Georgia Ports Authority, United States
- Tamil Nadu electricity Board
- SMC Global Power, Philippines
- Banpu Public Company Limited - Thailand
- VISA Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Barasentosa Lestari - Indonesia
- Indogreen Group - Indonesia
- Makarim & Taira - Indonesia
- TeaM Sual Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Goldman Sachs - Singapore
- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Siam City Cement - Thailand
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Kideco Jaya Agung - Indonesia
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Asmin Koalindo Tuhup - Indonesia
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Cement Manufacturers Association - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Petron Corporation, Philippines
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Commonwealth Bank - Australia
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
- Kaltim Prima Coal - Indonesia
- Trasteel International SA, Italy
- Marubeni Corporation - India
- SN Aboitiz Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- Ministry of Transport, Egypt
- AsiaOL BioFuels Corp., Philippines
- Ceylon Electricity Board - Sri Lanka
- Coal and Oil Company - UAE
- Kepco SPC Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Singapore Mercantile Exchange
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Thiess Contractors Indonesia
- Cigading International Bulk Terminal - Indonesia
- Interocean Group of Companies - India
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Mjunction Services Limited - India
- International Coal Ventures Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Directorate General of MIneral and Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Intertek Mineral Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- TNB Fuel Sdn Bhd - Malaysia
- Sarangani Energy Corporation, Philippines
- India Bulls Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Bhushan Steel Limited - India
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Dalmia Cement Bharat India
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Romanian Commodities Exchange
- Wilmar Investment Holdings
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