BIMCO: Dry Bulk Recovery A False Dawn

  • As Scorpio Bulkers Charters Ultramax Ship

Despite the strong rebound of freight rates in March this year that saw the Baltic Dry Index (BDI) pass 1,282 point mark on 27 March 2017, BIMCO expects the sector’s fully-fledged recovery to start taking shape in 2018 and 2019.

The BDI going up brought earnings into profitable levels for a couple of days, but for the recovery to be meaningful full year profits for all dry bulk segments should be maintained. That would require a full year where the average BDI is above 1,280 points, according to BIMCO.

“Last time we had that was in 2011. Note that the BDI average for Q1-2017 was 945. BIMCO sees the current developments as a ‘false dawn’ and reiterate expectations for 2017 as being a loss-making year for the industry as such,” the industry body said.

In terms of demand trends, there was an expected seasonal decline in Q1-2017, but a softer landing was provided for as China’s combined imports of iron ore, coal and soybeans went up by 36.5 million tonnes (19%).

As indicated by BIMCO, the grains shipping market seems to go from strength to strength, with soya supporting the Atlantic market. This support is set to continue, as major soya exporters like Brazil and Argentina normally increase exports in Q2. Thermal coal imports into China are also bolstering demand. Despite the suspension of the maximum-of-276-working-days-per-year policy, domestic production could not keep up with demand during the winter season. Short coal trips into China from Australia and Indonesia make the Pacific market busy.

Even though the winter is over, the suspension of the 276-working-days limitation remains in place. As always, the iron ore exports from Brazil to China provide support that lifts the capesize market, despite the 35 valemax ships taking their share of the market. Freight rates from Tubarão in Brazil to Qingdao in China went above USD 16 per tonne by mid-March as fixtures and volumes were unseasonably high. As many as 14 fixtures from Brazil to China carrying iron ore were done in one week. That was the highest number on record since the start of 2015, according to Commodore Research.

With respect to supply, January had more dry bulk capacity demolished than February and March combined. As the BDI moved higher, demolition activity weakened. Shipowners kept trading the ships themselves or sold them off in the second-hand market as asset values climbed.

“The fleet expansion via second-hand purchases builds on 0% total fleet growth, something which can only come around via more demolition. A ‘false dawn’ means that fundamental market balance improvements are happening much slower, if at all as the supply side is still growing almost as much as the poor demand growth rate,” BIMCO noted.

In nominal DWT terms, the total dry bulk fleet has already grown by 1.5% or 11.7 million DWT in 2017. The slowdown in demolition activity means that just 4 million DWT has been removed from the fleet so far in 2017. In comparison, 14 million DWT was demolished during Q1-2016. It seems clear that the supply side is not assisting the “Road to Recovery”, which projects an annual fleet growth rate of 0%.

BIMCO estimates that the supply side will grow by 2.3% for the full year, as newbuild deliveries will slow down and demolition is expected to pick up.

The record low ordering activity has continued into 2017, as orders have surfaced for only five ultramax ships, each of 63,000 DWT. This positive development has brought the total order book down to 69.5 million DWT all-inclusive – a level last seen at the end of 2004. Another continuing trend is that of owners expanding their fleets in the second-hand market. 2017 has already surpassed last year’s monthly average of 56 second-hand sales, as Q1-2017 saw 192 deals sealed.

The price for a 2010-built capesize and panamax ships has gone up by around 40% since 1 January 2017 according to VesselsValue as per 10 April 2017.

In the meantime, NYSE-listed dry bulk owner and operator Scorpio Bulkers has entered into an agreement with an unrelated third party to time charter-in one Ultramax vessel.

Under the deal, the vessel will be chartered for a period of two years at around USD 10,125 per day with an option to extend the agreement for one year at USD 10,885 per day.

The company did not unveil the details of the ship in question, however, it informed that the time charter is expected to commence prior to the end of October 2017.

Earlier in April, Scorpio Bulkers decided to sell its two 2014-built Kamsarmax vessels SBI Cakewalk and SBI Charleston to unaffiliated third parties for some USD 45 million in total.

Featuring 81,600 dwt, the ships, which were built by Chinese Jiangnan Shanghai Changxing Heavy Industries, were added to Scorpio Bulkers’ fleet in August and September 2014, respectively.

Following the completion of the sales, Scorpio Bulkers will own a fleet of 46 vessels, consisting of 18 Kamsarmax and 28 Ultramax ships, with a total carrying capacity of 3.2 million deadweight tonnes.

World Maritime News