14 April 2015

Demolition activity in the dry bulk market has more than doubled in relief sign for the market:

In what could only be deemed as a relief sign for the beleguered dry bulk market, ship owner Pacific Basin said in its latest first quarter trading update that, scrapping activity so far this year has significantly increased to an annualised 5% of the existing dry bulk fleet (from 2% in 2014), which is what we would expect in such a weak freight market. Many ship owners are negotiating with shipyards to delay, cancel and convert their dry bulk newbuilding orders.

As a result, there has been no net growth in the global dry bulk fleet since the end of January. Annualised dry bulk new ship ordering in the first two months of the year fell to the lowest on record at about 0.4% of existing capacity.

Of course, the market still remains subdued, as demand continues to suffer. According to Pacific Basin’s data, in the first two months of 2015, Chinese imports of seven key minor bulks reduced 33% mainly due to the impact of the Indonesian ban on unprocessed bauxite and nickel ore exports. Iron ore imports reduced marginally by 1% and coal imports fell 45% compared to the same period last year.

The company added that “while moderately improved, the dry bulk freight market going into the second quarter continues to be weak as sluggish demand fails to fully absorb the oversupply of ships built up in 2010-2012. China has been drawing down its bauxite, nickel and iron ore stockpiles, the government still targets an economic growth rate of about 7%, and any potential Chinese economic stimulus to support this target could benefit the dry bulk sector. Demand for many of the minor bulk commodities that we carry – in particular agricultural products – is expected to remain robust in the long term. Furthermore, US economic growth is stimulating demand for construction material which represents our second largest cargo group”.

Pacific Basin is active in the smaller ship classes, i.e. the Handysize and Handymax segments, where “market spot rates averaged US$5,070 and US$6,110 per day net respectively in the first quarter of 2015, representing a 45% reduction in average rates compared to the same period last year. Newbuilding deliveries deferred from 2014 into January and February coincided with the lunar new year holidays seasonal demand slowdown in China and seasonal export disruptions in key trade areas. Together, these pulled the Baltic Dry Index (BDI) to its lowest since indices began in 1985. However, spot market rates for Handysize and Handymax vessels have gradually improved since lunar new year, albeit from a very low base”, concluded Pacific Basin.

In an earlier report, shipowner Golden Ocean said that “in many aspects the dry bulk market behaved differently during 2014 from what has been the case in earlier years. Traditionally the seasonal pattern has been a slow start to the year due to adverse weather in the Southern hemisphere, while the fourth quarter normally provides more energy with restocking of both iron ore and coal. The first quarter started on a high note with Baltic Dry Index (BDI) averaging 1.371 followed by 28 percent and three percent declines in the following two quarters. The negative trend reversed during October and November, the gains were during December. Consequently the average BDI of 2014 was down by six percent compared to the previous year, making 2014 the second worst year since 1999. Capesize vessels earned on average $14,335 per day in the fourth quarter compared to $12,635 per day in the previous quarter and $27,071 in fourth quarter of 2013″, said Golden Ocean, summarizing the past few months.

According to the company, “what derailed the dry bulk freight market recovery were the lack of coal demand from China, the relief of the grain port congestion in South America compared to the previous year and the after effect of the stock piling ahead of the Indonesian ban on raw ore (nickel ore and bauxite) exports. Approximately 8.5 million dwt of new dry bulk capacity was delivered during fourth quarter of 2014, compared to 11.8 million dwt in third quarter. About 15.5 million dwt was removed from the tonnage list during 2014, fairly evenly spread out over the four quarters. The delivery ratio compared to the official order book at the beginning of 2014 was very similar to what has been the case the last couple of year. Just below 80 percent resulted in 47.5 million mt of new capacity. A total of 600 vessels above 10,000 dwt were delivered and 285 removed resulting in a net fleet growth of 5.2 percent measured in carrying capacity”, said Golden Ocean.

It added that “two months into 2015 the freight market has continued its negative trend with a BDI touching “all time low.” With Owners not even covering their operating expenses ordering of new capacity is not being considered and for the last four months shipyards have secured very few new orders. In addition, scrapping activity has picked up. During the first six weeks of this year 19 Capesizes have been committed to scrap buyers. This is almost half of what was scrapped in total last year. Most analysts expect that spot earnings this year on average will be in line with 2014″, the company concluded.

Source: Hellenic Shipping News. 7 April 2015

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