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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, 18 January 15
INDONESIA TO INDIA SUPRAMAX FREIGHT RATES ARE EXPECTED TO REMAIN WEAK NEXT WEEK
COALspot.com: The BDI was up 4.51 pct week on week on Friday 16, January 2015. The BDI closed at 741 points on this Friday after gaining arou ...
Friday, 16 January 15
U.S. WEEKLY COAL PRODUCTION UP 7.3% W-O-W
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
Thursday, 15 January 15
PANAMAX : MARKET CONTINUE ON LOW PACE - FEARNLEYS
Handy
On a general basis we can say that rates are softening in both hemispheres. Although for some specific trades we can see premiums being ach ...
Thursday, 15 January 15
LOW CASH COSTS, GOOD LIQUIDITY HELP ASIAN OIL COMPANIES IN PRICE ROUT - FITCH
Fitch Ratings says that rated oil and gas production companies in Asia can comfortably operate under low oil prices for some time given their gener ...
Wednesday, 14 January 15
DRY BULK MARKET NOTED ANOTHER WEEKLY DECLINE - INTERMODAL
COALspot.com: The Dry bulk market noted another weekly decline on Friday, with the performance of the Capesize market still weighing down on the re ...
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- Karbindo Abesyapradhi - Indoneisa
- Rio Tinto Coal - Australia
- New Zealand Coal & Carbon
- The State Trading Corporation of India Ltd
- Sinarmas Energy and Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Posco Energy - South Korea
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- Maheswari Brothers Coal Limited - India
- Toyota Tsusho Corporation, Japan
- Uttam Galva Steels Limited - India
- Mintek Dendrill Indonesia
- Meenaskhi Energy Private Limited - India
- Kumho Petrochemical, South Korea
- Wood Mackenzie - Singapore
- Global Business Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Mercator Lines Limited - India
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- Medco Energi Mining Internasional
- Globalindo Alam Lestari - Indonesia
- Antam Resourcindo - Indonesia
- PowerSource Philippines DevCo
- Mercuria Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- CNBM International Corporation - China
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Tata Chemicals Ltd - India
- San Jose City I Power Corp, Philippines
- Semirara Mining Corp, Philippines
- Energy Link Ltd, New Zealand
- Global Coal Blending Company Limited - Australia
- The Treasury - Australian Government
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- European Bulk Services B.V. - Netherlands
- Independent Power Producers Association of India
- Kideco Jaya Agung - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- PTC India Limited - India
- Marubeni Corporation - India
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Metalloyd Limited - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- Merrill Lynch Commodities Europe
- Coalindo Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- Australian Coal Association
- Africa Commodities Group - South Africa
- Salva Resources Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- Agrawal Coal Company - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- London Commodity Brokers - England
- LBH Netherlands Bv - Netherlands
- Central Java Power - Indonesia
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- The University of Queensland
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Bangladesh Power Developement Board
- Power Finance Corporation Ltd., India
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Economic Council, Georgia
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Ministry of Transport, Egypt
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Leighton Contractors Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Vedanta Resources Plc - India
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Anglo American - United Kingdom
- Xindia Steels Limited - India
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Goldman Sachs - Singapore
- Romanian Commodities Exchange
- Interocean Group of Companies - India
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Energy Development Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Kalimantan Lumbung Energi - Indonesia
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- MS Steel International - UAE
- Samtan Co., Ltd - South Korea
- Eastern Coal Council - USA
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Minerals Council of Australia
- ASAPP Information Group - India
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- Attock Cement Pakistan Limited
- Lanco Infratech Ltd - India
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Planning Commission, India
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Mjunction Services Limited - India
- Standard Chartered Bank - UAE
- Manunggal Multi Energi - Indonesia
- Indian Oil Corporation Limited
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- OPG Power Generation Pvt Ltd - India
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Parry Sugars Refinery, India
- Coastal Gujarat Power Limited - India
- Siam City Cement - Thailand
- Price Waterhouse Coopers - Russia
- Ceylon Electricity Board - Sri Lanka
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Carbofer General Trading SA - India
- Grasim Industreis Ltd - India
- Kaltim Prima Coal - Indonesia
- Bharathi Cement Corporation - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Karaikal Port Pvt Ltd - India
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