Baltic Dry Index Makes Highest One Day Gain of the Year so Far as Rate Surge Continues

Buoyed by an acceleration in scrapping activity, the Baltic Dry Index gained 22 points Friday to reach 539.

Buoyed by an acceleration in scrapping activity, the Baltic Dry Index (BDI) gained 22 points Friday to reach 539, exceeding the previous highest single day gain of the year so far set last week, for an 89 point gain week-on-week.

As Ship & Bunker previously reported, the BDI rose 21 points last Monday to reach 471, the joint highest single day gain of the year following a similar 21 point jump the previous Friday. 

Meanwhile 2016's first quarter scrapping rates sat at about 12.5 million to 14.5 million DWT, with 145 to 180 vessels sent for demolition, a 42 to 57 percent year on year volume increase and a 15 to 23 percent increase in the number of vessels year on year, according to a report from Platts.

However, despite the positive signs and the BDI's recent gains, industry players are still advising caution in celebrating the apparent growth, with Konstantinos Papazoglou from Bancosta Research commenting that while "scrapping is the most immediate way to reduce the number of ships in the water," he notes that "for it to be meaningful, it needs to be a significant number of ships demolished."

"Its important to keep in mind that in 2016 we are expecting approximately 54 million DWT [35 percent slippage included] to be delivered," Papazoglou added.

Dry bulk industry analysts say that in addition to the older ships that are being sent for demolition, an increase in the number of younger vessels would likely have a more significant impact on the troubled market.

Eva Tzima, head of research and valuations for Intermodal Shipbrokers, points out that only six vessels built in 2001 or later, including four Capesizes and two Panamax vessels, have so far been scrapped, with one research analyst from a shipbroking firm noting that roughly 7 percent of the fleet is over 20 years old.

"I expect the rate of demolition in the bigger sizes, especially in the Capesize segment, to continue at the same pace at least for the next and probably the third quarter of the year as well," said Tzima.

"Scrapping is a step in the right direction and coupled with minimal ordering should help, but it needs to be sustained," said Papazoglou, adding the net fleet growth for 2016 was seen at 3%, after accounting for a 35 percent fall in new deliveries.

Capesize vessels fleet growth will decline by 2 percent by end 2016, adds Tzima, while the Handysize, Supramax and Panamax fleets could see growth of 3.2 to 3.7 percent.

Recently, industry experts have repeatedly told market participants to be wary of the BDI's surge, advising against placing too much optimism on there being a meaningful recovery.