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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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Friday, 10 April 15
US COAL PRODUCTION FELL 4.7% W-O-W : EIA
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 17.4 million short ...
Friday, 10 April 15
DRY BULK MARKET'S DOWNFALL ALSO OFFER INVESTMENT BARGAINS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Dry bulk market rates have fallen to historical lows over the past few weeks, with no clear path of recovery, at least in the near term. As such, m ...
Thursday, 09 April 15
CAPESIZE: RATES ARE STILL DISAPPOINTING - FEARNLEYS
Handy
The handy market had a stronger sentiment before the Easter holidays, but have as the bigger panamaxes seen a softening tendency this week. ...
Wednesday, 08 April 15
DRY BULK MARKET SEEMS UNABLE TO CATCH A BREAK - INTERMODAL
COALspot.com: The Dry Bulk market seems unable to catch a break these days.
According to Intermodal, following the market stabilization that p ...
Wednesday, 08 April 15
CHINA BURNS HALF OF THE WORLD'S COAL - CHRISTOPHER T. WHITTY
Intermodal Weekly Market Update
China is the world's largest consumer of coal, using more coal each year than the United States, the Europ ...
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- Pendopo Energi Batubara - Indonesia
- White Energy Company Limited
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Borneo Indobara - Indonesia
- Directorate Of Revenue Intelligence - India
- Edison Trading Spa - Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Xindia Steels Limited - India
- Siam City Cement - Thailand
- ICICI Bank Limited - India
- Ministry of Mines - Canada
- Toyota Tsusho Corporation, Japan
- Gujarat Mineral Development Corp Ltd - India
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sree Jayajothi Cements Limited - India
- CIMB Investment Bank - Malaysia
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Coastal Gujarat Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
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- Tamil Nadu electricity Board
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- Karbindo Abesyapradhi - Indoneisa
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Central Java Power - Indonesia
- Banpu Public Company Limited - Thailand
- Gujarat Sidhee Cement - India
- Jaiprakash Power Ventures ltd
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Energy Development Corp, Philippines
- Electricity Generating Authority of Thailand
- Global Green Power PLC Corporation, Philippines
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- Global Coal Blending Company Limited - Australia
- Directorate General of MIneral and Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Marubeni Corporation - India
- Siam City Cement PLC, Thailand
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- VISA Power Limited - India
- Ind-Barath Power Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Independent Power Producers Association of India
- Bukit Asam (Persero) Tbk - Indonesia
- Aditya Birla Group - India
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Makmur.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Renaissance Capital - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- Vedanta Resources Plc - India
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- Electricity Authority, New Zealand
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Karaikal Port Pvt Ltd - India
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- GVK Power & Infra Limited - India
- Makarim & Taira - Indonesia
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Jorong Barutama Greston.PT - Indonesia
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- IHS Mccloskey Coal Group - USA
- Sarangani Energy Corporation, Philippines
- Chamber of Mines of South Africa
- Bangladesh Power Developement Board
- Attock Cement Pakistan Limited
- Kohat Cement Company Ltd. - Pakistan
- London Commodity Brokers - England
- PTC India Limited - India
- SMG Consultants - Indonesia
- Orica Australia Pty. Ltd.
- Ministry of Finance - Indonesia
- Sakthi Sugars Limited - India
- Metalloyd Limited - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Wilmar Investment Holdings
- Therma Luzon, Inc, Philippines
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Bhushan Steel Limited - India
- Formosa Plastics Group - Taiwan
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Coal and Oil Company - UAE
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Kaltim Prima Coal - Indonesia
- Savvy Resources Ltd - HongKong
- The University of Queensland
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Central Electricity Authority - India
- Kartika Selabumi Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Altura Mining Limited, Indonesia
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Straits Asia Resources Limited - Singapore
- LBH Netherlands Bv - Netherlands
- Star Paper Mills Limited - India
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Petron Corporation, Philippines
- Commonwealth Bank - Australia
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Madhucon Powers Ltd - India
- Agrawal Coal Company - India
- Australian Coal Association
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- Simpson Spence & Young - Indonesia
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Bhatia International Limited - India
- Indonesian Coal Mining Association
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Economic Council, Georgia
- Parry Sugars Refinery, India
- Australian Commodity Traders Exchange
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Binh Thuan Hamico - Vietnam
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Timah Investasi Mineral - Indoneisa
- Posco Energy - South Korea
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- India Bulls Power Limited - India
- Medco Energi Mining Internasional
- Parliament of New Zealand
- SMC Global Power, Philippines
- Thai Mozambique Logistica
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
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