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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, 08 March 15
FREIGHT RATES FROM INDONESIA TO INDIA IS TRENDING UP
COALspot.com: The freight market continued to see gains this week and all the indices were rose except for Cape index. The BDI was increased 4.62 p ...
Friday, 06 March 15
BALTIC DRY INDEX: IS THIS POWERFUL INDICATOR SIGNALING A GLOBAL RECESSION? - STREET AUTHORITY
Although memories of the Great Recession linger, a case can be made that better days lie ahead.
That’s because central banks around the ...
Friday, 06 March 15
U.S. WEEKLY COAL PRODUCTION ROSE 3.5% WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.1 million short tons (mmst) of coal ...
Thursday, 05 March 15
PANAMAX : THE ATLANTIC ROUND IS NOW PAYING AROUND US$ 5K PER DAY
COALspot.com: Handy - The activity in the handy/supra segment is back. “ We see more fresh cargo in the market for 2nd half March dates ...
Thursday, 05 March 15
INDIA WILL BE THE LARGEST DRIVER OF GLOBAL SEABORNE COKING COAL DEMAND GROWTH IN 2015 - WOOD MACKENZIE
Global demand growth will remain weak because of China’s negative demand growth.
COALspot.com: At Coaltrans India, Wood Mackenzie says I ...
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- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- SMG Consultants - Indonesia
- Goldman Sachs - Singapore
- Eastern Energy - Thailand
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Australia Pty. Ltd.
- New Zealand Coal & Carbon
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Petron Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Formosa Plastics Group - Taiwan
- Rio Tinto Coal - Australia
- Mercator Lines Limited - India
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Bayan Resources Tbk. - Indonesia
- Ambuja Cements Ltd - India
- Australian Commodity Traders Exchange
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- Siam City Cement - Thailand
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- Aboitiz Power Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- PTC India Limited - India
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Thai Mozambique Logistica
- LBH Netherlands Bv - Netherlands
- Miang Besar Coal Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- White Energy Company Limited
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Oldendorff Carriers - Singapore
- Larsen & Toubro Limited - India
- Planning Commission, India
- Salva Resources Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining Corp, Philippines
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- GAC Shipping (India) Pvt Ltd
- Semirara Mining and Power Corporation, Philippines
- Vedanta Resources Plc - India
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Georgia Ports Authority, United States
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Indian Oil Corporation Limited
- Minerals Council of Australia
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Lanco Infratech Ltd - India
- Wilmar Investment Holdings
- Africa Commodities Group - South Africa
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- Parry Sugars Refinery, India
- Anglo American - United Kingdom
- Star Paper Mills Limited - India
- Jindal Steel & Power Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Agrawal Coal Company - India
- The State Trading Corporation of India Ltd
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bhatia International Limited - India
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Malabar Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Ministry of Transport, Egypt
- Riau Bara Harum - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- The University of Queensland
- Indian Energy Exchange, India
- Chamber of Mines of South Africa
- Karaikal Port Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- Energy Development Corp, Philippines
- Coastal Gujarat Power Limited - India
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- GMR Energy Limited - India
- Indika Energy - Indonesia
- India Bulls Power Limited - India
- Attock Cement Pakistan Limited
- Sical Logistics Limited - India
- Power Finance Corporation Ltd., India
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- Xindia Steels Limited - India
- Sree Jayajothi Cements Limited - India
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Global Coal Blending Company Limited - Australia
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Sojitz Corporation - Japan
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Cement Manufacturers Association - India
- Makarim & Taira - Indonesia
- Madhucon Powers Ltd - India
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Kepco SPC Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Electricity Authority, New Zealand
- Bhushan Steel Limited - India
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- PNOC Exploration Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- ICICI Bank Limited - India
- MS Steel International - UAE
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- SMC Global Power, Philippines
- Energy Link Ltd, New Zealand
- Aditya Birla Group - India
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Indogreen Group - Indonesia
- Toyota Tsusho Corporation, Japan
- Gujarat Mineral Development Corp Ltd - India
- South Luzon Thermal Energy Corporation
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