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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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Thursday, 05 March 15
BUKIT ASAM BOOKED US$ 1 BILLION REVENUE IN 2014
COALspot.com: Indonesian publicly listed and state owned coal miner PT. Bukit Asam, has announced that, the revenue of the company for the period J ...
Wednesday, 04 March 15
AN AGENDA FOR CHANGE - FITCH INDONESIA CONFERENCE
Fitch Indonesia Conference - 5 March 2015
Fitch Ratings will host its annual Indonesia conference on 5 March 2015.
The theme of this year ...
Wednesday, 04 March 15
KEEP CALM AND INVEST IN DRY - THEODORE NTALAKOS
Keep Calm and Carry On was originally a motivational poster, intended to raise the morale of the British public, produced by the British government ...
Tuesday, 03 March 15
INDONESIAN COAL EXPORT VOLUME TO DECLINE 50% BY 2019
COALspot.com: The Indonesian government is planning to reduce coal export volume by 50% within the next five years while keeping its coal productio ...
Tuesday, 03 March 15
INDIAN THERMAL COAL IMPORTS: STEAMING FORWARD - CLARKSONS
Coal-fired power stations comprise around 60% of India’s power output, and with domestic supply issues and favourable international coal pric ...
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- Kartika Selabumi Mining - Indonesia
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Pendopo Energi Batubara - Indonesia
- Rio Tinto Coal - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Commonwealth Bank - Australia
- Oldendorff Carriers - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Aditya Birla Group - India
- Attock Cement Pakistan Limited
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Alfred C Toepfer International GmbH - Germany
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Cement Manufacturers Association - India
- Iligan Light & Power Inc, Philippines
- The Treasury - Australian Government
- Medco Energi Mining Internasional
- Wood Mackenzie - Singapore
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Ind-Barath Power Infra Limited - India
- SMC Global Power, Philippines
- Sarangani Energy Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Holcim Trading Pte Ltd - Singapore
- Straits Asia Resources Limited - Singapore
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- MS Steel International - UAE
- Miang Besar Coal Terminal - Indonesia
- Ambuja Cements Ltd - India
- Indian Oil Corporation Limited
- Indika Energy - Indonesia
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- ASAPP Information Group - India
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- Sindya Power Generating Company Private Ltd
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Videocon Industries ltd - India
- Malabar Cements Ltd - India
- Semirara Mining Corp, Philippines
- Independent Power Producers Association of India
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Banpu Public Company Limited - Thailand
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Semirara Mining and Power Corporation, Philippines
- Minerals Council of Australia
- Kohat Cement Company Ltd. - Pakistan
- Australian Commodity Traders Exchange
- Borneo Indobara - Indonesia
- ICICI Bank Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- Chamber of Mines of South Africa
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- Heidelberg Cement - Germany
- Cigading International Bulk Terminal - Indonesia
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Krishnapatnam Port Company Ltd. - India
- Kideco Jaya Agung - Indonesia
- Indo Tambangraya Megah - Indonesia
- Tata Chemicals Ltd - India
- Kaltim Prima Coal - Indonesia
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Eastern Energy - Thailand
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- Eastern Coal Council - USA
- Central Electricity Authority - India
- Formosa Plastics Group - Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- IHS Mccloskey Coal Group - USA
- Indogreen Group - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Jaiprakash Power Ventures ltd
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Altura Mining Limited, Indonesia
- Directorate Of Revenue Intelligence - India
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Intertek Mineral Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- GMR Energy Limited - India
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- The State Trading Corporation of India Ltd
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Star Paper Mills Limited - India
- New Zealand Coal & Carbon
- GAC Shipping (India) Pvt Ltd
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Orica Australia Pty. Ltd.
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Gujarat Mineral Development Corp Ltd - India
- CNBM International Corporation - China
- Bhatia International Limited - India
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Jindal Steel & Power Ltd - India
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Business Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Vizag Seaport Private Limited - India
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