BIMCO: Dry Bulk to Recover Slightly in Q2, But Rates Will Remain Under $10,000

Capesize vessels are being scrapped younger

BIMCO Friday said since early December 2014 conditions in the dry bulk shipping market have been “extremely bad”, but the second quarter of 2015 may be looking up slightly.

On 18 February, the Baltic Dry Index (BDI) hit an all-time low of 509, with Capesize, Panamax, and Handysize bulkers all making less than $5,000 per day on the spot market and Supramax freight rates were only marginally higher at $5,002 per day.

BIMCO predicted that Capesize time charter rates for the second quarter of 2015 would fall within the range of $3,000 to $9,000 per day, while during the same period Panamax vessels would earn between $5,000 and $9,000 per day, Supramaxes would make between $6,000 and $9,000 and Handysize bulkers would achieve between $5,000 and $7,000.

On the demand side, BIMCO said the fortunes of the dry bulk market are largely tied with Chinese demand for raw materials imports.

While Chinese GDP growth is still over 7 percent, demand for imported commodities was weaker last year than in recent years.

According to BIMCO, Chinese imports of high quality iron ore rose 13.7 percent to 112.6 million tons on falling prices, but imports of coal were down heavily across the board.

Thermal coal imports fell to 165.5 million tons from 192 million tons as domestic hydropower generation rose, and coking coal imports fell 14.6 million tons to 60.8 million tons despite higher steel production.

The cement trade fared well, however, growing 10 percent in 2014 to around 179 million tons.

On the supply side, a net 6 million deadweight tonnes (DWT) have been added to the global dry bulk fleet.

In the first two months of the year 68 ships with a combined capacity of 5 million DWT were demolished, but 11 million DWT of new dry bulk capacity were delivered into the active fleet, mostly Supramaxes.

Of those that were demolished, Capesize ships were being decommissioned much younger at an average age of 21 years compared with Handysize vessels, which finished service with an average age of 27 years.

“Extremely low earnings has pushed more ships out of the market,” said BIMCO.

The overall order book for drybulkers fell to 158.2 million DWT from 168.8 million DWT three months ago.

“It remains an imperative for a sustainable freight market recovery that new contracts remain scarce for an extended amount of time,” said BIMCO.

Gains in Q2 if Oversupply Checked

Fortunately, according to BIMCO, prices offered by shipyards for newbuilds are said to be some 10 to 15 percent above those seen between 2012 and 2013.

Key to a brighter future for the dry bulk market in the short term will be strong seasonal demand for South American soya exports in the second quarter of 2015, BIMCO predicted.

But if too many ships look to get in on the trade this will hamper rates, it added.

Russian wheat exports performed strongly in the second half of last year but they are likely to be hit by western sanctions in 2015.

The longer term picture will depend on various factors, said BIMCO, but two key areas of potential support hang in the balance.

Indian demand for coal was up in 2014, and could provide support for bulkers if growth in that trade continues.

In addition, Chinese imports of high quality iron ore have been growing as prices have fallen dramatically.

If China decides to close “inefficient” domestic mines in favour of further imports this will create additional demand for the industry, said BIMCO.

Last month, five dry bulk carriers announced they were teaming up to improve results in a "competitive and fragmented" Capesize market, while European dry bulker Copenship filed for bankruptcy citing an "extremely bad" market.