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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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Tuesday, 17 March 15
GAS TO CHALLENGE COAL IN THE ASIAN POWER GENERATION MIX - WOOD MACKENZIE
KNOWLEDGE TO ELEVATE
Wood Mackenzie says that coal is facing increasing competition from gas in the power sector. Coal has dominated as the fu ...
Tuesday, 17 March 15
RIO TINTO PAID US$ 7.1 BILLION IN TAXES IN 2014
COALspot.com: Rio Tinto has published its latest Taxes paid report, detailing the US$7.1 billion in taxes paid by the company around the world in 2 ...
Tuesday, 17 March 15
NEARLY 17% OF US COAL PRODUCTION UNECONOMIC AT CURRENT MARKET PRICING - WOOD MACKENZIE
COALspot.com: Close to 17% of forecast 2015 US coal production is at risk of idling or closure, totalling 162 million short tons (Mst), as these mi ...
Tuesday, 17 March 15
Q3' SA COAL SWAP CLOSED $57.30 PMT W/E 13 MARCH
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and gained week on week.
The Q2 swap has fe ...
Monday, 16 March 15
MAKING THE WORLD GO ROUND - SEABORNE TRADE! - CLARKSONS
Money, or even love if you prefer, are claimed to make the world go round. For the shipping world, however, it’s trade that sets things spinn ...
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- Minerals Council of Australia
- Chamber of Mines of South Africa
- Attock Cement Pakistan Limited
- Gujarat Mineral Development Corp Ltd - India
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- MS Steel International - UAE
- Aboitiz Power Corporation - Philippines
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- CNBM International Corporation - China
- Bhatia International Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- Barasentosa Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Renaissance Capital - South Africa
- Leighton Contractors Pty Ltd - Australia
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- The Treasury - Australian Government
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- India Bulls Power Limited - India
- Aditya Birla Group - India
- Port Waratah Coal Services - Australia
- Kaltim Prima Coal - Indonesia
- London Commodity Brokers - England
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Savvy Resources Ltd - HongKong
- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Indian Energy Exchange, India
- Binh Thuan Hamico - Vietnam
- Global Coal Blending Company Limited - Australia
- Energy Development Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- Miang Besar Coal Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sojitz Corporation - Japan
- TNB Fuel Sdn Bhd - Malaysia
- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Rio Tinto Coal - Australia
- Ministry of Transport, Egypt
- Essar Steel Hazira Ltd - India
- Sree Jayajothi Cements Limited - India
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Sindya Power Generating Company Private Ltd
- Borneo Indobara - Indonesia
- Mintek Dendrill Indonesia
- Electricity Authority, New Zealand
- Energy Link Ltd, New Zealand
- Commonwealth Bank - Australia
- CIMB Investment Bank - Malaysia
- The University of Queensland
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- Deloitte Consulting - India
- Jorong Barutama Greston.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Karaikal Port Pvt Ltd - India
- Baramulti Group, Indonesia
- Kepco SPC Power Corporation, Philippines
- ASAPP Information Group - India
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- PTC India Limited - India
- Romanian Commodities Exchange
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- Mercuria Energy - Indonesia
- Orica Australia Pty. Ltd.
- Australian Coal Association
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Chettinad Cement Corporation Ltd - India
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- White Energy Company Limited
- Riau Bara Harum - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- SMG Consultants - Indonesia
- ICICI Bank Limited - India
- Sical Logistics Limited - India
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- McConnell Dowell - Australia
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- Billiton Holdings Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Planning Commission, India
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Gujarat Sidhee Cement - India
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- San Jose City I Power Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Altura Mining Limited, Indonesia
- IEA Clean Coal Centre - UK
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- Directorate General of MIneral and Coal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- VISA Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- South Luzon Thermal Energy Corporation
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- Economic Council, Georgia
- Offshore Bulk Terminal Pte Ltd, Singapore
- PetroVietnam Power Coal Import and Supply Company
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- Heidelberg Cement - Germany
- Kideco Jaya Agung - Indonesia
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Jindal Steel & Power Ltd - India
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Coalindo Energy - Indonesia
- Indika Energy - Indonesia
- The State Trading Corporation of India Ltd
- Indonesian Coal Mining Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Metalloyd Limited - United Kingdom
- GMR Energy Limited - India
- Electricity Generating Authority of Thailand
- TeaM Sual Corporation - Philippines
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