Drewry: Recovery of Dry Bulk Market a "Long Way Off"

Drewry asserts that the dry bulk shipping market is a "casualty" of iron ore and coal prices, which are in a "virtual free fall.”

Drewry Shipping Consultants Ltd (Drewry) says the dry bulk market is a "casualty" of iron ore and coal prices, which are in a "virtual free fall" due to shrinking demand, and any relief for the sector is still a "long way off."

Offering a glimmer of hope for small vessel employment is the onset of warmer El Niño weather conditions, which Drewry notes should have a favourable impact on demand for long-haul grain trade.

Still, with the overall depressed outlook for the dry bulk sector, Drewry says that it "believes that the future of a number of yards and owners are at risk," and offers two possible outcomes.

The first, and said to be the most likely, is that demand will grow faster than supply from 2015 on, allowing the market to recover by 2017.

The second scenario, says Drewry, will see Chinese iron ore and Indian coking coal import demand end up much lower than current forecasts.

"In the low-case scenario, the dry bulk trade would contract in 2015 with only modest growth in subsequent years, creating a depressed market and making it difficult for many shipowners to survive the unfavourable market conditions," said Rahul Sharan, lead analyst for dry bulk at Drewry.

Vessel supply is said to have been tempered by low demand, which has also increased scrapping and delayed, or even cancelled, newbuild deliveries.

Drewry says that it expects these trends to remain consistent throughout the remainder of 2015 and into 2016, effectively hampering any dry bulk fleet growth.

"We expect a marginal improvement in earnings from the third quarter but this will be too small to have any noticeable effect on industry income," explained Sharan.

"We anticipate a recovery from 2017 driven by rising demand from developing Asian economies."

In February, Drewry said that it expected the dry bulk market to experience a recovery later this year, partly as a result of new fuel-efficient ships.